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A.C.i.T. Vs. Nandan Sales Corpn. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Agra
Decided On
Judge
Reported in(2008)117TTJAgra433
AppellantA.C.i.T.
RespondentNandan Sales Corpn.
Excerpt:
1. the appeal has been filed by the revenue against the order of cit(a) for the assessment year 2000-2001 and the cross objection has been filed by the assessee against the same order of ('it(a). first, we decide the appeal of the revenue.2. in ground no. 1, the revenue is agitated on the ground that the cit(a) has erred in deleting the addition of rs. 15,35,399/- on account of goods in transit.3. the assessing officer has discussed the facts of the case at page 1-2 of his order. the brief facts of the case are that the assessing officer, on perusal of profit and loss account, found that a debit of rs. 15,35,399/- was made in the name of loss of goods in transit in profit and loss account. the assessee explained that the firm deals in nonferrous metal scrap and purchases are mostly made.....
Judgment:
1. The appeal has been filed by the Revenue against the order of CIT(A) for the assessment year 2000-2001 and the cross objection has been filed by the assessee against the same order of ('IT(A). First, we decide the appeal of the Revenue.

2. In ground No. 1, the Revenue is agitated on the ground that the CIT(A) has erred in deleting the addition of Rs. 15,35,399/- on account of goods in transit.

3. The Assessing Officer has discussed the facts of the case at page 1-2 of his order. The brief facts of the case are that the Assessing Officer, on perusal of profit and loss account, found that a debit of Rs. 15,35,399/- was made in the name of loss of goods in transit in profit and loss account. The assessee explained that the firm deals in nonferrous metal scrap and purchases are mostly made from abroad. The purchases of Brass Ash Dross was made from two companies of outside India for Rs. 15,35,399/- to whom payments were made on 02.05.1996 and 11.07.1996. The Assessing Officer had disallowed the claim for the following reasons: From the above fact submitted by the assessee it is very clear that the import of Brass Ash Dross was banned by the government of India in 1997, therefore, if any loss was incurred it was incurred in the year 1997 and not in the year under consideration. Further there is no new development in the year under consideration which forced to the assessee to claim this purchase as loss in this year. Under these circumstances, if he was carrying over this purchase as goods in transit year after year since 1997 then it may have been continued in this year also at least till he has right to take delivery of the goods. Therefore, the loss, if any, was occurred it can be considered in the year when the goods were reached in India and in anyway delivery could not be taken by the assessee or it will be considered as occurred in the year as and when the right of assessee for taking delivery of these goods is finished or goods are destroyed or after taking delivery loss incurred.

Here, I may point out that no Government impose any ban at once but every Govt. always allow some time gap to complete the job which is in pipe line. In this case it seems that some legal fault has been committed by the assessee in importing these goods., therefore these may have been banned at Delhi and thus loss if any occurred in the year 1997 may have been due to break of law and such type of loss due to break of law of the land is not allowable deduction from the income of the assessee at any time.

4. The learned CIT(A) held that such loss is allowable for the reasons given in his order, which are reproduced as under: I have considered the facts of the case and the arguments of the learned representative of the appellant. So far as the observation of the A.O. that the loss incurred might have been incurred on account of breaking of the law of the land, I find that the learned representative of the appellant has rightly pointed out that this was based on surmises and conjectures. The A.O. has not pointed out any particular provision of law, which had been violated by the appellant. On the other hand the matter has been examined by the Enforcement Directorate and vide their order dated 30.10.2000 the claim of the appellant firm had been found genuine and it was exonerated of any liability of penalty under the provision of FERA 1973. Another reason given by the A.O. for not allowing the claim of the appellant is that the same should have been claimed in the year of import because if any loss was incurred then it was incurred in the year 1997. The A.O. has also mentioned that there was no new facts of change in the circumstances in the year under consideration. The A.O. has also mentioned that loss if any should have been either considered in the year in which the goods reached India or in the year when the right of the assessee for taking delivery of these goods was lost or the goods were destroyed. I find force in the arguments of the learned representative of the appellant that the appellant firm was apprehending change in the policy of the government. In fact there was some change in the Government policy and import of Brass Dross was permitted subject to license to be issued by the Government and on actual user basis. The appellant, therefore, could not have thought that there was no hope of getting the goods released in future in the year in which the goods were brought to India. The appellant has also established that it would have been more beneficial to the appellant if he had claimed the losses in the year of import itself. The claim of the appellant is bonafide and it was a prudent decision that the claim of loss of goods should not haw been made in the year in which the imports were made. The appellant has clearly pointed out that as per the provisions of Section 145 read with the accounting Standard (1), the accounts on the mercantile basis are to be based on the prudence, and provision should be made for all known liabilities.

The appellant in his business prudence waited for a period of three years and since the expected change in the policy of Government did not materialize and after taking into consideration the fact that due to accrued demurrage and detention charges it was uneconomical to take delivery of the goods, the appellant acted in a prudent manner in writing off the amount in question and claiming the same as business expenditure. If we take into consideration the letter dated 16.7.2003 from M/s. Container Corporation of India Limited, it is seen that huge amount of ground rent had accrued on the containers. Similarly, the detention charges of shipping companies accrued were also very high in comparison to the cost of material involved. The appellant was, therefore, justified incoming to the conclusion that it was uneconomical to take the delivery of goods even if it was permitted to do so later at any stage. The appellant had, therefore, rightly valued the closing stock of the goods in transit at zero value. Looking from any angle either the value of the goods in transit should be taken as zero or the amount if considered as advance given to the suppliers then the same has rightly been treated as bad debt. Under the facts and circumstances of the case, the claim of the appellant was justified. The appellant has rightly pointed out that similar claim in the case of another assessee had been allowed for assessment year 1998-99 in the case of Shri Pramod Kumar Garg by the DCIT, Circle 3(1), Mathura. In that case also, no claim had been made for the assessment year 1997-98.

The appellant has also given proper clarification as to how its case was not covered under the explanation provided for import of goods in pipeline as its imports were not backed by any letter of credit and therefore, the consignment could not be cleared from customs.

Considering the facts and circumstances of the case and the arguments of the learned representative of the appellant, I am of the view that the claim of the appellant for allowing deduction of Rs. 15,35,399/- was justified. The addition made by the A.O. of Rs. 15,35,399/- is directed to be deleted.

5. The learned D.R. relied upon the order of the Assessing Officer and the learned A.R. relied upon the order of the CIT(A).

6. We have heard the rival submissions and have also perused the records. Having regard to the facts, as narrated by (he CIT(A) at page 23 of his order, it is evident that the goods had arrived India and the assessee had not taken delivery. Having regard to the fact that he was required to pay the amount for demurrages and it was also evident from the letter dated 16.7.2003 of M/s. Container Corporation of India Limited that huge amount of ground rent had accrued on the containers.

Similarly, the detention charges of shipping companies accrued were also very high in comparison to the cost of material involved. The assessee, therefore, came to the conclusion that it was uneconomical to take the delivery of goods even if it was permitted to do so later at any stage. The appellant had, therefore, valued the closing stock of the goods in transit at zero value. From the perusal of the order of CIT(A), it is evident that he had not give an any finding as to the year in which the loss was incurred by the appellant and wrongly compared the issue to the provisions of Section 36(1)(vii) of the Act.

It cannot be said that the provisions as contained in Section 36(1)(vii) read with Section 36(2) regarding bad debt is applicable.

This is not the case of bad debt. In fact the goods reached India and the assessee had already made the payment. Therefore, this is not the case of bad debt. Therefore, this case is restored to the file of the CIT(A)to give specific finding as to the year in which the loss occurred.

7. Ground No. 2 & 3 are general in nature and do not require specific adjudication by us.

8. Ground No. 1 is against the confirmation of disallowance of Rs. 55,237/- towards car expenses and against confirmation of disallowance out of depreciation claimed on car.

9. The Assessing Officer found that the assessee claimed expenses on car and depreciation Rs. 5,62,373/- (Expenses at Rs. 2,90,946/- + driver's salary at Rs. 20,544/- + depreciation at Rs. 2,40,843/-). The Assessing Officer had made the disallowance at the rate of 10% of above expenses keeping in view the fact that none of the partners has their personal vehicle.

10. The learned CIT(A) has sustained this disallowance for the reasons given in his order.

11. The learned A.R. submitted dial (he expenses incurred on car were for the business purpose and therefore, no disallowance could be made out of depreciation on car, as held by Hon'ble ITAT Mumbai 'B' Bench in the case of Mukesh K. Shah v. Income Tax Officer .

12. We have heard the rival submissions and have also perused the records. As regards the expenses on car, we are of the opinion that the learned CIT(A) has rightly sustained the disallowance having regard to the facts of the case. As regards the disallowance of depreciation, we find that no disallowance can be made in view of the order of ITAT, Mumbai 'B' Bench in the case of Mukesh K. Shah v. Income Tax Officer (supra), wherein in para 13 it has been held as under: But as far as the depreciation is concerned, there is no justification in making any disallowance. If the car is used by the assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute. Depreciation is a statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the assessee and it should be used for the business or profession. Both the conditions are satisfied here. Personal use of the car cannot fetter the granting of statutory allowance.

Therefore, the disallowance made on account of depreciation is deleted.

13. No contrary view has been pointed out by the learned D.R.Therefore, the disallowance out of depreciation on Car sustained by the CIT(A) is hereby deleted. The Cross Objection of the assessee is partly allowed.

In the result, the appeal of the Revenue is allowed for statistical purposes and the cross objection of the assessee is partly allowed.

1. I have gone through the draft order and being unable to convince myself with the conclusion arrived at therein and not succeeding in convincing my learned Brother, I have no alternative but to write my own separate order.

2. Before proceeding it is considered appropriate to first address the specific facts.

3. The facts of the case are that the assessee is a partnership firm and in the year under consideration has been engaged in the business of importing Nonferrus Metal Scrap from different parts of the world in order to sell the same in the domestic market. The turnover in the year under consideration is of Rs. 42.02 Crores. The modus operandi of the assessee has been addressed in the statement of facts annexed to the memorandum of appeal filed before the CIT(A) as under: The modus operandi of the business of (he appellant firm that it mainly deals in the goods imported from various parts of world and sells such goods in domestic market. The suppliers of appellant firma belong to far flung area such as USA, Australia, UK, Germany etc. the mode of payment generally is that the soon after the lading of goods, hill is presented to the Banker of the assessee firm i.e.

Bank of Baroda, IBB Brunch. M G Road. Agra and this bills are transferred/negotiated to the appellant firm by the Banker on payment of bill amount. The bill then is filed before the Custom authorities at Nava Seva, Mumbai or Kandla or New Delhi as may be suitably alongwith bill of entry for home consumption and after payment of Custom duties and other shipping and clearing charges, the goods are delivered to the appellant firm and are generally brought to the appellant's godown at Mathura.

4. A perusal of the Assessment Order would show that the assessee was required to explain the reason for the debit in the P&L account of Rs. 15,35,399/- in the name of loss of goods. In response thereto with regard to it's justification the assessee filed written explanation dated 12.07.2002 stating that the purchases of Brass Ash Dross was made from two companies outside India for the said amount to whom payments were made on 02.05.1996 and 11.07.1996. However, due to the change in the policy of the Government of India the import for the said item became prohibited and under these circumstances though the goods have been received at Delhi they could not be brought here and taken over since 1997 and thus since 31.03.97 year after year the assessee is showing the paid up value of this goods as goods in transit. The following details with regard to the purchase of consignment was given by the assessee:Name of the party Weight MT Container No.Acetec Metals Co. Ltd., Taiwan 40.504 CYLU2227534 CYLU2061295 5. It had been argued by the assessee as per the statement of facts before the CIT(A) that due to the environmental policy of the Government of India these goods were put on the restriction list and prohibited, as such, no other payments like Customs Duty, Shipping Company charges, clearing charges in respect of these goods were made.

However, after showing these goods in transit from year to year it was considered no more useful to carry such sum in the balance sheet since even if the import is allowed by the Government, in such a situation also not be economically viable to get those goods cleared due to heavy demurrage and detention charges. As such, it was considered necessary and prudent to write of the sum of Rs. 15,35,399/- to the profit and loss account for the assessment year 2000-01 and the following note was appended to the Notes to the Accounts as note No. 5: During the year under consideration, a sum of Rs. 15,35,399/- has been written off pertaining to the goods in transit. The amount represents the amount paid towards import of certain non-ferrous items, which could not be got cleared due to restriction imposed by the Government. It is considered prudent to write off this amount as that there remains no possibility of any realisation from in said account.

6. The said explanation was not accepted by the A.O. The arguments was advanced before him that even two and half years of writing off there was still no hope of the receipt of such goods. In this background it was agitated that apart from loss of goods, the claim of the assessee can be allowed as bad debt also since the amount paid by the assessee cannot be recovered as the goods although technically have arrived in India but only upto the Customs limits as due to the change in Governmental Policy they cannot be utilised. It was also submitted that since in the peculiar circumstances the assessee cannot also make a claim against the supplier of goods as all that was required to be done by the supplier at his end has already been done. It is only on account of the change in the environmental polity etc. of Government of India that the goods have been added in the restricted list. As per the statement of facts it was submitted that if in future the assessee firm is able to realize anything in respect of such claim, the same would be offered for taxation.

7. As per the statement of facts it was also proved on facts before the A.O. that the goods have not been lifted by the assessee. The relevant facts are reproduced hereunder: During the course of assessment proceedings, the appellant firm was required to prove that goods had not been lifted. In this regard, it was submitted that as the foreign exchange was utilised by the appellant firm and as the Exchange control copy of the Bill of Entry could not be filed with the Bankers. Reserve Bank of India caused an inquiry conduced through Assistant Director of Directorate of Enforcement who vide order dated 30.10.2000, after detailed inquiry found the claim of appellant firm as genuine and exonerated it from any liability of penalty etc. under the provisions of Foreign Exchange Regulation Act, 1973. An affidavit dated 02.09.2002 duly sworn by Sri Narendra Kumar Agarwal, partner of appellant firm was also filed confirming non clearance of the impugned goods from Customs was also filed.

9. In appeal, the addition made by the A.O. by making a disallowance was deleted by the CIT(A). The Revenue is agitated by the said deletion. Accordingly the Revenue is in appeal before the Tribunal.

10. The assessee on the other hand in support of the impugned order has filed its Cross Objection.

(1) That the learned CIT(A) has erred in law and on fact in deleting the addition of Rs. 15.35.399/- made by the A.O. on account of goods in transit, without property appreciating the facts of the case mentioned in as (sic) order.

(2) That the appellant craves leave to add or alter one or more ground(s) during the hearing of appeal.

(3) That the order of the learned CIT(A), Agra being erroneous in law and on facts be set aside and that of the A. C). he restored.

12. The grounds raised by the assessee in its Cross Objection on the other hand read as under: (1) Because learned Commissioner (Appeals) erred in the facts and circumstances of the case in confirming the disallowance of Rs. 55,237/- towards car expenses which were unreasonable and excessive looking the nature and size and expediency of business and in any case, no disallowance should have been made out of depreciation which is a statutory allowance. Fair, just and reasonable relief be kindly allowed.

(2) Because learned Commissioner (Appeals) was justified in the facts and in totality of the circumstances of the case in deleting the addition of Rs. 1,535,399/- as was made by the Assessing Officer to the returned income by disallowing claim of loss on goods in transit.

13. On a consideration of facts, circumstances and the arguments advanced before the Bench I am of the view that the specific facts which were taken into consideration by the A.O. have been fully dealt with by the CIT(A). Each and every argument has been fully taken into consideration before arriving at the conclusion. The detailed arguments, facts and evidences taken into consideration by the CIT(A) have been discussed at great length vide para 4, 4.1 at page 6 to para 4.14 at page 21. Thereafter the detailed and speaking finding arrived at in para 4.15 at pages 22 to 24 has already been reproduced by my learned brother at pages 2 to 4 of the proposed draft order. On a careful consideration, I am unable to subscribe the view taken in para 6 of the proposed order since I am of the view that in the peculiar facts and circumstances of the case, no further investigation is required. Had the case been where the issue was purely to be considered in the light of the argument of whether a loss has occurred or not on account of theft, fire or any other calamity then on facts it may be necessary to ascertain whether the loss has actually occurred or not.

In the facts of the peculiar case admittedly the goods had arrived at the stores of the country, however, custom clearance was not taken by the assessee on facts due to the change in environmental policy of the Government which facts are admitted facts by either side. The payment to the supplying party on the negotiated bills also admittedly stood paid which too is an admitted fact. The assessee as a prudent businessman admittedly played a waiting game taking a gamble the environmental policy of the Government of India might chance subsequently waiting for quite some time there was no change this time in the environmental policy. Another decision as a prudent businessman which was taken by the assessee to write off these goods which anyway were shown on a zero value as demurrages and other related costs were admittedly mounting. In these circumstances, there is no doubt on the fact that in the year the goods were imported, custom clearance was not obtained by the assessee on account of change in the policy of India.

This fact as observed is an admitted fact as such requires no further investigation. The other fact is that in the year under consideration the assessee finally chose to write off these amounts after having waited for quite sometime for a change in the government policy. This fact is also an admitted fact and requires no investigation. In order to sit on a judgment on the decision of the assessee whether he should have written it off in the year the goods arrived in India or in any of the other years instead of the year under consideration does not require any investigation on as if would necessitate that the A.O. will sit in judgement however the prudence of the decision of the businessman which is against the settled legal principles. It is a settled legal principle that the A.O. while adjudicating upon the taxable income of the assessee is not to sit in (lie shoes of the business man and decide the manner in which the assessee should run its business. On facts it is seen that the CIT(A) has taken into consideration the reply of the assessee dated 16.08.2002 before the A.O. wherein copy of the order of the Enforcement Department dated 30^th October, 2000 has been relied upon. The said fact is found discussed at page 7 of the impugned order on the basis of which it has been argued by the assessee that there was still some hope for release of the cargo and the right of the assessee to sole delivery of the material was in existence. This fact is found discussed even in page 2 of Assessment Order. In the fact of the peculiar ease, the enquiry got conducted by the RBI through the Directorate Enforcement was specifically on account of the fact that the assessee required foreign exchange for the payment of these goods since the goods could not be imported within the customs territory of India due to their banned status as per the Government policy it was necessary to ascertain whether there was any violation of Section 8(3) and Section 8(4) of FERA 1973. A perusal of the page 11 of the impugned order further shows that as per the letter dated 6.08.2002 queries raised therein was further replied on 03.09.2002 wherein the assessee placed reliance on the sworn affidavit of Shri Narendra Kumar Agarwal, partner of the assessee, copy of which is placed at pages 30 to 31 of the Paper Book, affirming the fact that the goods were not delivered to the assessee and no customs duty, transportation charges, clearing expenses were paid in respect of these goods. Page 12 of the impugned order shows that it has been agitated by the assessee that the assessee is not in a position to make recovery of the goods from the seller since the same has already arrived in India. The fact that they have no value despite incurring a cost was also agitated and in the context of these arguments it was agitated that apart from loss of goods the claim is also allowable as a bad debt. A perusal of page 13 of the impugned order shows that it has been agitated that the claim cannot be allowed in the year of import itself since there was no reason for the assessee to presume that the Government of India policy would not change and the assessee has not benefited by not claiming it in the year of import itself. Identical claim as per page 14 of the impugned order had been allowed in the case of Pramod Kumar Gargh, dampier Nagar, Mathura for 1998-99 A.Y.14. As per page 15 the assessee also addressed the application of provision of Section 145 in the context of accounting standard-I and accounting standard-II laid down by Notification No. 9949 dated 25.01.1996. On the said aspect following submissions have been made: Section 145 to zetner wan Accounting Standard I notified by the Government, more particularly para 4 of the said standard makes clear that accounts has to be on mercantile basis and to be based on prudence and the provisions should be made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information. Here in this case as also submitted before learned ACIT. that full period of three years had expired since the payment of the goods, expected change in the policy in the Government policy did not materialize and considering that even if the import were allowed by the Government, the demurrage and detention charges accrued on such un-cleared goods had out weighed any realisation from those goods (that the appellant would not be able to realise even a rupee from the said cargo even if the imports were allowed due to demurrage and detention charges), it acted in a prudent manner in writing off the amount and claiming the same as business expenditure as such loss occurred during the course of business. Here it may be mentioned that though the loss was named as 'loss on goods in transit' the substance over form should be viewed in an overall scenario and not merely as loss in transit. Full facts in this regard were disclosed in the notes to the accounts and all further information was supplied to the learned ACIT in this regard.

It is also submitted that to claim a loss, it is no where necessary that the assessee's right to recover must be exhausted as envisaged by learned ACIT. Acceptance of loss dos not mean that right to recover must also be lost Section 36(1)(vii) is one such example.

15. In these circumstances, it was agitated before the CIT(A) that the payment for the consignment had not included these amounts in its purchase account and had in fact debited to the goods in transit account as the delivery of the goods was not effected. Consequently, the purchase was not complete and the amount should be treated as advance in the course of the business and after having written off these amounts to the P&L account the assessee has complied the necessary requirement of Section 36(1)(vii). Conversely if it is to be understood that the purchase is complete then the goods lying with the Port Authorities were part of the closing stock of the assessee since the assessee values its closing stock at lower of the cost or next realizable value the assessee by writing off these amounts to the P&L account must be deemed to have taken the value of such closing stock at nil value as these stocks had lost any realizable value the claim of the assessee it was agitated to be allowed on this ground also.

16. The assessee had further offered that in the eventuality any recovery is made on these bills the same could be offered for taxation although on facts for not lifting the goods the assessee would be liable for demurrages etc. As per page 17 & 18 of the impugned order the assessee furnished details regarding demurrage and other charges accrued so far. A perusal of the same shows that Container Corporation of India Limited has worked out the ground rent on 3 containers at Rs. 54,16, 400/- till 16.07.2003, copy of the said letter is placed at Paper Book page No. 27.

17. With regard to the detention charges of Shipping Company till 31.03.2000 M/s Choyang Shipping Company Limited had worked out detention charges of Rs. 45,44,756/- till 31.03.2000 and further Rs. 54,23,424/- for the period 01.04.2000 to 16.07.2003. The other Shipping Company namely Sea Land had closed its office in India. However, it was submitted that identical detention charges would have been worked out by it also. However, it was agitated that no demurrage or detention charges or the ground rent has been paid by the assessee. The particulars of the ground rent charges are found mentioned in para 4.10 of the impugned order wherein the 3 container nos. are mentioned in respect of which over Rs. 18 lakhs odd ground rent each have been worked out by the Container Corporation of India.

18. A perusal of para 4.11 shows that the aspect whether the goods had been sold on highseas also, in support of which the affidavit dated 22.09.2002 of the partner as per para 4.11 had been relied upon copy of which has been field before the Bench. Copies of the original of commercial invoice bill of claiming and other import related documents negotiated with the bank were filed and the originals were also shown by the assessee.

19. The arguments of the A.O. that some time is allowed normally by the government when policy decisions are changed for clearance of goods etc. already in pipeline as such the assessee could have got its goods cleared has also been addressed. It was submitted that as per page 20 that the exception provided for a window of 45 days could not be availed of by the assessee as its import was not backed by any letter of credit and therefore its consignment could not be cleared from the customs.

20. With regard to the hope of the assessee of change in Government policy regarding import of Brass Ash Dross it was submitted that these items are amended and modified. Specific reference was made to Notification Number 38 (RF-2000)/1997 - 2000 dated 16^th October, 2000 issued by Director General of Foreign Trade whereby restriction was imposed. However, the assessee did not take delivery of goods as the assessee was still not eligible and the costs etc. had also increased on account of the heavy demurrage and detention charges.

21. As per para 4.13 of the impugned order a remand report was also obtained from the A.O. dated 16.09.2003 wherein it is stated that all these facts were agitated in the course of hearing before him and are found discussed in this order. The AO in the remand report stated that the assessee's claim deserves to be rejected since the goods were still available at Delhi Port and the assessee could still take delivery of the same and the same is not barred. Further he was of the view that if any loss occurred to the assessee after taking the delivery then the same could be considered in the same year. Further, he was also of the view that if all the period of time the goods has been shown in transit then nothing special has been occurred in the year under consideration then since the goods was on the prohibited list in 1997 then the claim can be considered in the same year. In reply thereto the assessee filed its rejoinder considering which the CIT(A) gave a detailed finding in para 4.15 in the proposed daft order.

22. In the course of the arguments before the Bench the finding of facts and the evidences taken into consideration by the CIT(A) had not been rebutted by the Revenue. Apart from relying upon the Assessment Order, no specific argument was advanced by the D.R. to address the aspect as to how on facts the finding arrived at in the impugned order can be interfered with. On behalf of the department, there is no argument on facts brought to the notice of the Bench so as to come to the conclusion that the decision of the assessee taken as a prudent business man is malafide and in order to avoid due taxes. This fact has specifically been addressed by the assessee before the CIT(A) and no rebuttal thereon has been either argued by the learned D.R., or referred to by the A.O. in its remand report. The facile argument of the AO that the loss occurring to the assessee after making the due payment for the goods would. be accepted thereafter cannot be accepted.

As the AO cannot sit in the shoes of the assessee and advise him to make payments of exorbitant amounts in order to claim the loss thereof since making the payments for a dead loss or not is the prudent business decision of the business man alone to be taken as per his understanding of his business interest. In fact if this argument is accepted then this would amount to saying that the AO can sit over the prudent decision of the businessman, which cannot be allowed. Since the AO cannot force the assessee to make exorbitant payments arising by way of ground rent, demurrage for the value of goods on which the payment of Rs. 15 lacs odd had been made as such so as to recover these future payments also. Since admittedly, the goods were still on the prohibited list. Apart from the fact that it cannot be insisted upon by the AO since the A.O. cannot sit on judgement on the prudence of the businessman's decision. It would also be an argument which goes against the Revenue. Accordingly, in these peculiar facts and circumstances, the claim of the assessee is to be allowed and the facts and argument taken into consideration would not entitle the assessee to make a claim over and above the amount of loss claimed by it in the return of income. Accordingly on account of the detailed reasons given herein above, I am of the view that the grounds of the Revenue deserve to be rejected and ground No. 2 of the assessee in support of the impugned order has to be allowed. In the result, the appeal of the department is to be dismissed and Cross objection of the assessee is to be partly allowed.

1. Briefly, the facts are that the assessee, a partnership concern, continues to deal in non-ferrous metal scrap and kept its accounts on mercantile basis. During the year ended 31.03.1997, the assessee made purchase of Brass Ash Dross from companies abroad. The payment for purchase thereof was remitted in foreign currency on 02.05.1996 and 11.07.1996. The import of these items, however, had been placed on the restricted list vide its notification No. 1 (RF-96)/92-96 dated 25^th March, 1996 issued by Director General of Foreign Trade with an exception of the shipments of the export or import made within 45 days of imposition of such restriction against a firm order booked by irrevocable letter of credit established before the date of imposition of such restrictions. In assessee's case no irrevocable letter of credit was established nor had it a requisite license for import of such goods. The cargo carrying the goods, therefore, was held by customs Department at Inland Container Depot, a dry port at Delhi. The assessee disclosed the said purchase as goods-in-transit forming part of inventories as on 31.3.97 and valued it at a cost of Rs. 15,35,399/-. From year to year, the assessee continued to value its inventory held as goods in transit at the same cost price and stood accepted in assessment of all the earlier years. During the year under consideration, the assessee, however, decided to value the inventories of these goods at nil price, thereby writing off the entire sum of Rs. 15,35,399 pertaining to goods in transit to profit and loss account. A note to the accounts to this effect was also appended. This note read as under: During the year under consideration, a sum of Rs. 15,35,399 has been written off pertaining to the goods in transit. The amount represents the amount paid towards import of certain non-ferrous items, which could not be got cleared due to restriction imposed by the Government. It is considered prudent to write off this amount as that there remains no possibility of any realization from the said account.

2. The Assessing Officer after examining the issue at length vis a vis the material brought on record refused to allow the deduction of loss so claimed by the assessee. The reason taken by the Assessing Officer to disallow this claim is that in case of loss, if any, the same was not incurred in the year under consideration. He found that the assessee's right to take delivery had not extinguished nor the goods had been destroyed. In fact no new development has taken place in the circumstances that existed in the earlier years to warrant deduction for loss in the year under consideration. The claim, thus, stood disallowed.

3. In appeal before it. the learned CIT(Appeals) made certain enquiries from the assessee. As a result of such enquiries, the assessee brought on his record that the container carrying these goods are still lying un-cleared at Inland Container Depot Tugalkabad New Delhi. A letter dated 16.07.2003 written by Container Corporation of India Ltd. to the assessee revealed that the ground rent payable for these containers till 16.07.2003 aggregated to Rs. 54.16.400/-. The assessee also brought on record that besides the ground rent payable, there was liability on account of detention charges of shipping company namely Chovang Shipping Co. Ltd. at Rs. 45,44,756/- till 31.03.2000 and further Rs. 54,23,424/- for the period 1.4.2000 to 16.07.2003. The other shipping company Sea Land has closed its office in India and the information or certificate from them could not be obtained. The assessee also put forth a plea that there was hope of change in Government Policy regarding allowability of import of Brass Dross and in fact a notification No. 38(RF-2000)/l997-2000 dated 16.10.2000 was issued by the Director General of Foreign Trade whereby the restriction was cased and the appellant was still not eligible to take delivery of the goods. By this time, the heavy demurrage and detention charges had accrued and as such, taking delivery of goods was not viable for him.

He, therefore, took a decision to value the stock at nil and written off the loss to profit and loss account. The learned CIT(Appeals) accepting the pleas vide para 4.15 of his order found that the claim made by the assessee is bona fide. He also found that it was a prudent decision of the assessee not to claim loss of goods in the year in which the imports were actually made. Making reference to provisions of Section 145 of the I.T. Act 1961 read with Accounting Standard-I, it was asserted that the accounts on mercantile basis are to be based on prudence and a provision has to be made for all known liabilities and losses. The appellant in his business prudence waited for a period of three years and since the expected change in the policy of Government did not materialize and having regard to the accrued demurrage and detention charges in terms of letter dated 16.07.2003 from M/s.

Container Corporation of India Ltd., he was satisfied that it was un-economical for the assessee to take delivery of the goods and as such, the appellant acted in prudent manner in valuing the stock so held at zero price and writing off the consequent loss and claiming the same as business expenditure in the year under consideration.

Alternatively, if the amount paid to foreign supplier is considered as advance given to them then also the same has rightly been treated as bad debt and assessee's claim for bad debt in terms of his letter dated 12.07.2002 before the Assessing Officer was held to be a justified claim. Accordingly, he directed the Assessing Officer to allow deduction of Rs. 15,35.399/- as claimed by the assessee.

4. The Revenue challenged the said decision of leaned CIT (Appeals)-I.Agra to be erroneous both in law and on facts with the direction to set aside the same so that the order of Assessing Officer is restored whereas the assessee preferred cross objection and took a ground in support of the decision rendered by the learned CIT(Appeals) to allow loss on goods in transit.

5. The learned Accountant Member, who proposed the order, considered the rival submissions and perused the entire material on record and found that the assessee had valued the closing stock of goods in transit at zero value but the ld. CIT(A) did not record any finding as to the year in which the loss was factually incurred by the assessee.

He, therefore, considered it proper to restore the issue to the learned CIT(Appeals) to give a specific finding as to the year in which the loss had occurred. The learned Accountant Member also expressed a clear view that the ld. CIT(Appeals) has wrongly compared the issue of claim of loss with the provisions of Section 36(1)(vii) of the I.T. Act and held that it being not a case of bad debt, the same was not deductible as bad debt.

6. The learned Judicial Member disagreed with the order proposed by the learned Accountant Member and concurred with the findings reached by the ld. CIT(A). in as much as, the decision to value the inventories of goods in transit at zero price was a prudent decision of businessman.

This was so accepted as the assessee as a prudent businessman, admittedly played a waiting game taking a gamble that the environmental policy of Government of India might change subsequently coupled with the fact that demurrage and other related costs were mounting. She also observed that the issue did not require further investigation and taking note of Accounting Standard-I and II laid down by Notification No. 9949 dated 25.01.1996. she accepted that the goods in transit continued to remain on the prohibited list and as the Assessing Officer cannot sit on the judgment of prudence of a businessman, the decision of valuing the goods in transit at zero price and thereby claiming the loss to the profit and loss account, was found rightly allowed by the ld. CIT(Appeals). She, therefore, rejected the ground in appeal by the Revenue and allowed the ground of assessee with respect to loss of goods in transit.

7. There being points of difference between the Members, a reference Under Section 255(4) of the I.T. Act, 1961 was made to Hon'ble President, Income-tax Appellate Tribunal and the following question has been referred: Whether in the facts and circumstances of the peculiar case is it appropriate to restore the issue for verification or to sustain the finding arrived at in the impugned order.

8. Shri C.L. Ambesh, Addl. CIT 7 Sr. D.R. on behalf of the Revenue in his short address before me, contends that the ld. CIT(Appeals) has not clearly given any finding that the amount in question is a bad debt or a loss in transit or an expenditure incidental to the business allowable under Section 37(1) of the Act. The decision taken by the leaned Accountant Member to set aside the order of learned CIT(Appeals) and restoring the matter to his file to record a finding in cleat-terms as to the year in which the loss has occured and adjudicate the issue accordingly, therefore, needs to be concurred with.

9. On the other hand. Shri MM. Agarwal, leaned Chartered Accountant appearing on behalf of the assessee supports the decision reached by the ld. Judicial Member, who has concurred with the findings reached by the learned CIT(Appeals) after making complete enquiries into the facts involved in the issue. On the enquiries made by Ld. CIT(Appeals), even a remand report was taken. There was complete material available with the learned CIT(Appeals) to have accepted that the assessee has acted as a prudent businessman in valuing the goods in transit at zero price and writing off the loss to the profit and loss account. Section 145 of the I.T. Act read with Accounting Standards requires to make provision for all known liabilities to the prudence of a businessman. The decision taken by the assessee to value the goods-in-transit at zero price and write off the loss was found bona fide by the ld.CIT(Appeals) and accepted by the learned Judicial Member, for which no contrary material has been laid on record by the Revenue. Even the learned Accountant Member did not make any reference to any material which can be said to have not been considered by the ld. CIT(Appeals) for allowing the claim of the assessee. As the matter could have been disposed of by the Tribunal on the basis of material already on record, the learned Accountant Member should not have passed a remand order and restored the matter to the ld. CIT (Appeals). Reliance has been placed to the judgment rendered by Hon'ble Gujrat High Court in the case of Saurashtra Packaging Pvt. Ltd. v. CIT which also came for consideration by Third Member in the case of Srimanta Shanker Academi v. ITO (2007) 109 TTJ (Gau.)(TM) 426 and the view entertained by Hon'ble Gujrat High Court has been followed. To the same effect is the judgment rendered in the case of DCIT v. Rohtas Projects Ltd. (2006) 100 ITD 113 (Lucknow)(TM). It has also been contended that it would not be a sound exercise of discretion by the Appellate Authority to remit the matter to the subordinate authority for writing such order as would, in the opinion of Appellate Authority, be a proper and better order. Reliance was placed on the judgment rendered by the Tribunal in the case of Laxmi Metal Works v. ACIT (1999) 70 ITD 01 (Chd.) (TM) and also another judgment in the case of Tatia Sky Line and Health Farms Ltd. v. ACIT (1999) 70 ITD 387 (Chennai).

10. The assessee's counsel also filed a letter dated 19.07.2007 written by Shri Narendra Kumar Agarwal, partner of the firm for giving up the claim Under Section 36(1)(vii) of the I.T. Act. This letter has been counter signed by the counsel Shri M.M. Agarwal. Accordingly, the view entertained by Ld. Accountant Member that the deduction as bad debt could not be allowed stands admitted.

11. I have heard the parties with reference to the material on record and precedents cited at Bar. It appears to me that the learned CIT(Appeals) over reached a conclusion on irrelevant consideration and the learned Judicial Member concurred with him and did not rest the decision on any tangible material, which was necessary to ascertain the correctness of valuation of goods-in-transit brought forward in its accounts from year to year and allow deduction as loss in the year under consideration. The assessee had originally disclosed its valuation of stock-in-transit forming part of inventories, at cost of Rs. 15,35,399/- as on 31.03.1997. He is reportedly a dealer in non-ferrous metal. The said valuation of cost was taken to be the same from year to year and admitted by revenue in all the earlier assessments. Even in the year under consideration, no change in method of valuation is reported. It is generally accepted as an established rule of commercial practice and accountancy that the stocks at the end of the year have to be valued at cost or market price whichever is lower. Ordinarily, the goods should not be written down below the cost except where there was an actual or anticipated loss. In the present case, the assessee when he reduced the cost of goods in transit to a zero price, it was necessary to find out as to whether the assessee reduced true profits of its business as a dealer of non-ferrous metals carried during the year under consideration or otherwise a case of anticipated loss or that a case of loss of prospective profit in the year under consideration. The deduction appears to have been allowed without showing or bringing on record any tangible material to support his claim that the market value on the date of making of its accounts was less than the cost.

12. In assessee's case before me, going by the accounting standards as referred in Section 145 of the Act, the only prudence that the assessee could use is with respect to making of provision for all liabilities or losses. In case the provision for known liabilities was to be made that would have gone to add further to the cost of goods in transit, while the anticipated loss had the effect of merely reducing the prospective profits, but by that reason alone there could have been no justification to discard the valuation made at cost. The assessee is not shown to have used his prudence in making the provisions of known liabilities, which could further add to the cost nor is shown to have brought any tangible material on record to show that the market price of these goods on the date of valuation as on 31.03.2000 had fallen below the cost at which goods have been valued from year to year.

13. In the case of Chainrup Sampatram v. CIT , it has been held by the Apex court that valuation of unsold stock at the close of the accounting period was a necessary part of the process of determining the trading results of that period. It cannot be regarded as a source of profit. Profits can be correctly ascertained only after bringing into the trading account the closing stock wherever it may exist. It was further held that the true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of their purchase, so that on canceling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year have taken place and thereby showing the profit or loss actually realized on the year's trading. The entry for stock which appears in a trading account is merely intended to cancel the charge for the goods purchased which have not been sold which should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state the profit on the goods actually sold. From this doctrine there is one exception, namely, the adoption of market value at the date of making up of accounts, if that value is less than the cost. This is in anticipation of the loss that may be made on the goods in the following year. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account as no prudent trader would care to show increased profits before actual realization. This theory that the closing stock is to be valued at cost or market price whichever is lower, is now generally accepted as an established rule of commercial practice and accountancy.

14. To the same effect is the judgment of Apex Court in the case of CIT v. British Paints India Ltd. . In the said judgment it has been held that it is a well-recognized principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower. Where the market value has fallen before the date of valuation and where the market value of the article on that date is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he may incur at the lime of the sale of the goods. It was further held that the correct principle of accounting is to enter the stock in the books of account at cost unless the value is required to be reduced by reason of the fall in the market value of the goods below the original cost. Ordinarily, therefore, the goods should not be written down below the cost price except where there is an actual or anticipated loss. On the other hand, if the fall in the price is only such as it would reduce merely the prospective profit, there would be no justification to discard the initial valuation at cost.

15. In a recent judgment in CIT v. Hindustan Zinc Ltd. before the Apex Court, the assessee was found to have valued the closing stock of Zinc Concentrate below the cost price by estimating its net realizable value at Landon Metallic Exchange price and not at the domestic price. Taking note of the principle laid down in CIT v. British Paints India Ltd. (1998) 188 ITR 44 that where the fall in price has the effect of merely reducing the prospective profit, and there would be no justification to discard the valuation of cost, it held that the case at hand is not the case of anticipated loss, but is a case of reduction in the prospective profits.

16. Neither the learned CIT(Appeals) nor learned Judicial Member in the present case before me is shown to have examined the issue in the light of aforesaid principles for accepting the valuation of stock in transit at zero price. Furthermore, in order to succeed in respect of claim of a trading loss apart from proving that the loss is incidental to trade and the loss falls on the assessee in the capacity of a trader, it was also to be examined that it occurred in the relevant accounting year.

The onus thereof lay on the assessee to have proved by bringing on record some tangible material that the loss that he had claimed had occurred in the relevant year under consideration. Neither the learned CIT (Appeals) nor learned Judicial Member made reference to any such material for resting their conclusions. For the purpose of assessment of correct income of the assessee, it was, thus, necessary to have made further enquiries. If upon enquiries, it is found that the assessee has not proved that the loss occurred is of the relevant year, necessarily the inference would go against him. The High Court of Judicature at Allahabad in the case of CIT, Lucknow v. India Turpentine & Roses Co.

Ltd. has laid down the principle as under: In order to succeed in respect of a claim of a trading loss, apart from proving that the loss is incidental to trade and the loss falls on the assessee in the capacity of a trader, it has to be proved that it occurred in the relevant accounting year.

17. The Special Leave Petition by the assessee against the said judgment also stands dismissed in SLP (Civil No. 10425 of 1980) and finds reported in 145 ITR (St) 6. The High Court of judicature has also laid the principle that the burden to prove a loss lies on the assessee who is seeking deduction. If the assessee does not prove the loss, the inference goes against him. Reference for this may be had in CIT v.Ashwani Kumar Liladhar 18. The Assessing Officer in this case before me, is found to have recorded a finding of fact that the loss was not incurred in the year under consideration. This finding was not shown to be perverse on facts by the Ld. CIT(Appeals) nor by Ld. Judicial Member nor any reference has been made to any reliable material to hold otherwise. If the assessee has incurred the loss in any of the earlier year, the same was not eligible for deduction in the year under appeal. The Hon'ble Madras High Court in Devi Films Pvt. v. CIT has also laid down a principle with respect to the year of allowance of trading loss as under: If a trading loss had been incurred in an earlier year, but by some reason it was not allowed, it is clearly not eligible for deduction in any subsequent year in the computation of net profits of that year.

19. As regards the finding reached by the learned CIT(Appeals) that the assessee's action to value the goods in transit at zero price, was a bonafide decision, I find myself unable to subscribe to that view. As stated earlier, there is no reference to any reliable material on record which could be taken a basis to form a bona fide thought that the entire cost of goods in transit has actually been lost in the impugned year or could make a basis to show that the loss claimed is anticipated or that it was not a case of loss of anticipated profit.

The learned CIT(Appeals) appears to have accepted the plea on the basis of a subsequent enquiry made on 16.07.2003 from Container Corporation of India whereby they have worked out the ground rent payable upto 16.07.2003 on three containers at Rs. 54,16,400/- and likewise detention charges of the shipping companies as well. These expenses merely could be added to the further cost only and when goods on a future date are sold, the same would result into loss of profit or otherwise has also not been enquired. The change in valuation of its inventory of goods in transit held intact as on 31.3.2000 could not have been determined on the basis of a subsequent event of 16.07.2003, or even of any other date but ought to have been determined only on the basis and with reference to events that were prevalent on the date of valuation as on 31.03.2000 relevant to assessment year 2000-01 under consideration. This having not been done, the plea of bona fide cannot be upheld.20. The learned Judicial Member has also recorded a finding of fact that the assessee, as a prudent businessman admittedly played a waiting game taking a gamble that the environmental policy of the Government of India might change subsequently and after waiting for quite some time, there being no change in the environmental policy, took a decision to value its stock in transit at zero value. 1, however, find myself unable to concur with the reasoning taken by learned Judicial Member to have reached such a conclusion. At the time when the Environmental Policy came in force and a restriction was placed on import of such goods on 25^th March, 1996, the goods under consideration were not even shipped from the country of its origin. Even the bill of lading is of dated 25.3.96. The payment of such goods had also not been made by that time. If the assessee had admitted that he was playing a game of gamble, it was necessary to find as to whether he has finally quitted the game in the year under consideration itself. Without doing that, he was not entitled to claim deduction for such contended loss against his income from normal business.

21. The doctrine of prudence as envisaged by Section 145 of the Act also cannot be so stretched to make it applicable to a transaction of gambling unless the assessee is shown to be in that profession/business. Even otherwise, the game of gamble is not shown to be over at the time when he decided to make entries to value its goods in transit at nil price and return the difference as a loss to the profit and loss account. The demurrage and storage charges appear to have mounted and exceeded the cost of goods not in the relevant year under consideration but in the earlier years when doctrine of prudence, if at all, could have been invoked. The property in goods is also stated to be held intact by the Container Corporation of India and this fact is evident from its subsequent letter dated 16.07.2003. Under such glaring facts on record, it was thus necessary to enquire that he has lost the last ray of hope of recovery of even a single farthing in the said goods in the year under consideration or in any other year.

22. Viewed with another angle, the Accounting Standards I & II as referred for allowing deduction on the basis of prudence, in fact, relate to method of accounting, as envisaged Under Section 145 of the Act. Section 145 of the Act is merely a machinery provision, which necessarily is to be taken as an enabling provision only so as to effectuate the charge provided under the Income-tax Act. Though by merely looking at the wording of Section 145, it may appear that the accounting standards as may be notified by the Central Government have to be followed in computing the income chargeable under the heads profits and gains of business, yet Section 145 of the Act cannot be used for destroying the charge to tax by the provisions of Section 4 & 5 of the I.T. Act. At the time when income is subjected to tax that charge of income accrued or received in India cannot be avoided by any method of accounting because the method of accounting cannot affect the ambit of tax. The learned CIT(Appeals), however, without examining the claim in the aforesaid manner attached undue importance to the prudence which was for a limited purpose of deducing income for the purpose of machinery provision and not to be taken as a conclusive factor for assessing the income in terms of charging sections under the Act. The learned Judicial Member without adverting into the enquiry herself in that respect, also spoke in the same voice and allowed the claim which factually needed further enquiry into the facts.

23. In my humble opinion, until and unless a fall in price of goods held as goods-in-transit has been established or that the materials or the property therein is shown to have lost its value even to the last farthing as on 31.03.2000 by bringing on record some reliable evidence thereof, the factor of prudence alone, in a case like this, could not have been made a basis to allow deduction in the year under consideration. The only basis that could be acceptable for valuation of stock of inventory held as goods-in-transit is the price prevalent on the last date of accounting year which in the instant case was 31.03.2000 and no other basis or subsequent events thereof be taken as a base to accept the value of goods in transit at a zero price. This view finds support from the judgment rendered by Hon'ble Bombay High Court in the case of CIT v. Kamani Metals & Alloys Ltd. .

24. The learned Accountant Member, however, under the peculiar facts of this case, found that the learned CIT(Appeals) has not given any finding as to the year in which the loss has factually been incurred by the assessee. In his wisdom, he therefore, considered it fit to restore the matter to the file of learned CIT(Appeals) so as to give specific finding in that respect and come to the conclusion accordingly. All the relevant material and basic facts to decide the issue of valuation thereby terming the loss as trading loss of the year under consideration were not shown to be on record nor any reference thereof was made before the Tribunal or Ld. ClT(Appeals). The law is very clear that the tax is on the income of the relevant year which is deduced after defraying for expenses of that year and not of any year unless otherwise provided by statute. I am, therefore, satisfied that further enquiry into basic facts were needed and as such, there is nothing wrong in directing a remand, for which the Appellate Authority has the jurisdiction as well as the duty to correct the errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision, the appeal is preferred to dispose of the whole or in part of the matter afresh unless forbidden from doing so by the Statute. The Statute, however, does not say that such a direction cannot be issued by the Appellate Authority in a case of this nature. A view on this is found laid by Apex Court in Kapoor Chand Srimal v. CIT (1981) 131 ITR 454 at page 25. Their Lordship of Hon'ble Calcutta High Court in the judgment rendered in the case of United Commercial Bank v. CIT made the following observation on power to remand a case for further investigation of facts in the following words: The Tribunal has power to remand a case for a further investigation of facts but the power has to be exercised with proper discretion.

It should not be exercised if all the basic facts necessary for the disposal of the matter are already on record and if these facts appear in the order of the ITO and the A AC.26. Similar is the view entertained by Hon'ble M.P. High Court in the case of Raja Vikramaditya Singh v. CIT (1998) 169 ITR 55 (MP) as under: The power of the Appellate Tribunal to remand a matter in an appropriate case to investigate fresh facts cannot be disputed, but that power must be exercised with proper discretion and it would not be exercised if all the basic facts required for disposal of the matter are already on record. It would not be a sound exercise of discretion by an appellate authority to remit a case to the subordinate authority for writing such order as would, in the opinion of the appellate authority, be a proper and better order.

27. The Tribunal judgments relied upon by the assessee as well as the judgment rendered by Hon'ble Gujrat High Court in the case of Saurashtra Packaging Pvt. Ltd. v. CIT (supra) which came for consideration by Third Member in the case of Srimanta Shanker Academi v. ITO (supra) would not be applicable to a case like this, wherein further enquiries as indicated hereinbefore were wanting and without making such enquiry into the basic facts, a conclusion as that reached by the learned CIT(Appeals) or accepted by the learned Judicial Member, was neither factually possible nor sustainable in law. Agreeing with the learned Accountant Member that the year of loss is to be determined, the decision taken by the learned CIT( Appeals) is set aside, who shall have to make enquiry into the facts and consider the legal principles as aforesaid and pass a speaking order with reference to the material on record for coming to a conclusion thereon in accordance with law. Needless to add, effective and reasonable opportunity of being heard shall be allowed to the assessee.

The matter shall now go before the regular Bench for deciding the appeals in accordance with opinion of the majority.

1. That the Ld. CIT (A) has erred in law and on fact in deleting the addition of Rs. 15,35,399/- made by the A.O. on account of goods in transit without properly appreciating the facts of the case mentioned in assessment.

2. That the appellant craves leave to add or alter one or more ground(s) during the hearing of appeal.

3. That the order of the ld. CIT (A) Agra being erroneous in law and on facts be set aside and that of the A.O. be restored.

2. The assessee had also filed a cross objection wherein following grounds were raised: 1. Because learned Commissioner (Appeals) erred in the facts and circumstances of the case in confirming the disallowance of Rs. 55,237 towards car expenses which were unreasonable and excessive looking the nature and size and expediency of business and in any case, no disallowance should have been made out of depreciation which is a statutory allowance. Fair, just and reasonable relief be kindly allowed.

2. Because learned Commissioner (Appeals) was justified in the facts and in totality of the circumstances of the case in deleting the addition of Rs. 1,535,399 as was made by the Assessing Officer to the returned income by disallowing claim of loss on goods in transit.

3. On account of difference of opinion between the Hon'ble Judicial Member and Hon'ble Accountant Member, the matter was referred by Hon'ble President to Third Member. As per majority of opinion, ground No. 1 in Revenue's appeal and ground No. 2 in assessee's cross objection is decided in favour of the Revenue, but for statistical purposes, as the issue has been restored by the majority view to the file of the ld. CIT(Appeals) as per directions/observations made by the Third Member. Accordingly, the appeal of the department is allowed for statistical purposes whereas ground No. 2 in cross objection raised by assessee is dismissed.

4. Ground No. 1 in assessee's cross objection has been partly allowed in favour of the assessee.

In the result, the appeal filed by the Revenue is allowed for statistical purposes whereas the cross objection of the assessee is partly allowed. Order pronounced in the court on 14/3/08.


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