M/s. STAR DIAMOND COMPANY (BELGIUM) N.V., MUMBAI v. DDIT (I.T) - 2(1), MUMBAI

ITA 3234/MUM/2006 | 2001-2002
Pronouncement Date: 31-05-2010 | Result: Allowed

Appeal Details

RSA Number 323419914 RSA 2006
Bench Mumbai
Appeal Number ITA 3234/MUM/2006
Duration Of Justice 4 year(s) 7 day(s)
Appellant M/s. STAR DIAMOND COMPANY (BELGIUM) N.V., MUMBAI
Respondent DDIT (I.T) - 2(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted L
Tribunal Order Date 31-05-2010
Date Of Final Hearing 29-09-2009
Next Hearing Date 29-09-2009
Assessment Year 2001-2002
Appeal Filed On 23-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO.3234/MUM/2006 ASSESSMENT YEAR-2001-02 M/S. STAR DIAMOND COMPANY (BELGIUM)N.V. (NOW KNOWN AS STAR DIAMOND GROUP N.V.) 1110 PRASAD CHAMBERS 11 TH FLOOR OPERA HOUSE MUMBAI-400 004 PAN - AADCS - 9924K VS. THE DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION-2(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P.J. PARDIWALA & SHRI PANKAJ TOPRANI RESPONDENT BY: SHRI AARSI PRASAD O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 10.3.2006 PASSED BY THE LD. CIT(A)-VI MUMBAI F OR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE IS A COMPANY REGISTERED IN BELGIUM AND HAVING A BRANCH IN INDIA. THE BRANCH IN INDIA IS ENGAGED IN IMPORTING ROUGH DIAMONDS AND SELLING THE SAME IN INDIA. THE AO ADD ED RS. 17 00 890/- ON ACCOUNT OF LOW GP OF THE ASSESSEE DURING THE YEA R. THE CIT(A) WHILE DELETING THE ADDITION ON ACCOUNT OF THE GP HAD DIRE CTED THE DISALLOWANCE OF LOSSES OF RS. 96 85 623/- AND RS. 4 73 990/- INC URRED BY THE ASSESSEE ON SALE OF ITS STOCK. THE ASSESSEE COMPANY IN THEIR APPEAL BEFORE US HAVE RAISED THE FOLLOWING GROUNDS: ITA NO.3234 /M/06 2 1. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN D IRECTING THE ASSESSING OFFICER TO IGNORE THE LOSS SUFFERED IN RE -EXPORT OF OPENING STOCK OF RS.96 85 623/- UNDER THE FACTS AND CIRCUMS TANCES OF THE MATTER HE OUGHT NOT TO HAVE HELD SO. 2. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN DI RECTING THE ASSESSING OFFICER TO IGNORE THE LOSS SUFFERED IN RE -EXPORT OF GOODS ON 28.6.2000 OF RS.4 73 990/- UNDER THE FACTS AND CIRC UMSTANCES OF THE MATTER HE OUGHT NOT TO HAVE HELD SO. 3. ON FACTS AND IN LAW THE LEARNED CIT(A) FAILED TO A PPRECIATE THAT LOSS IN RE-EXPORT OF GOODS TO HEAD OFFICE WAS UNDER THE CIRCUMSTANCES BEYOND CONTROL OF ASSESSEE AND HENCE THE LOSS SUFFE RED IN THE TRANSACTIONS OUGHT TO HAVE BEEN ALLOWED TO THE ASSE SSEE. 4. THE ASSESSEE CRAVES LEAVE TO AMEND ALTER OR MODIFY THE ABOVE GROUNDS OF APPEAL OR ADD A NEW GROUND OF APPEAL AS DEEMED NECESSARY AT OR BEFORE THE TIME OF HEARING. 3. FOR THE ASSESSMENT YEAR THE ASSESSEE FILED A RET URN OF INCOME ON 25.10.2001 DECLARING A LOSS OF RS.1 60 13 900/-.TH E ASSESSING OFFICER FOR THE REASONS STATED IN THE ASSESSMENT ORDER REJECTE D THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT AND ESTIMATED THE GROSS PROFIT OF THE ASSESSEE AT 5%. CORRESPONDING TO SALE S OF THE ASSESSEE @ 5% GP WORKS OUT TO RS.37 90 30 465/- RESULTING IN A PROFIT OF RS.17 00 889/- AFTER TAKING INTO ACCOUNT THE EXPEN DITURES OF RS.37 73 29 576/- CLAIMED BY THE ASSESSEE. ACCORDIN GLY HE DETERMINED THE TAXABLE INCOME OF THE ASSESSEE AT RS. 17 00 890 /-. 4. AGGRIEVED THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO OBSE RVING AS UNDER: (I) MERELY BECAUSE THE ASSESSEE COMPANY HAS LESS G .P. DOES NOT AUTOMATICALLY MEAN THAT THE BOOKS OF ACCOUNTS MAINT AINED BY THE COMPANY ARE REQUIRED TO BE REJECTED . (II) IN THE ABSENCE OF A DEFINITE FINDING THAT TH E CASE FALLS WITHIN THE PROVISO OF SECTION 145(1) IT WAS NOT POSSIBLE TO SUSTAIN REJECTION OF BOOKS RESULTS AND ADDITION TO THE GROS S PROFIT. ITA NO.3234 /M/06 3 (III) THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASS ESSEE CANNOT BE REJECTED MERELY ON THE GROUND THAT GROSS PROFIT DIS CLOSED BY THE BOOKS WERE LOW AND COMPARED UNFAVOURABLY WITH T HOSE OF OTHERS IN THE SAME LINE OF BUSINESS IN ABSENCE OF A NY MATERIAL TO SUPPORT THE SAME. (IV) LOW PROFIT WITHOUT ANY DEFECTS BEING FOUND IN THE A CCOUNT BOOKS IS NOT A SUFFICIENT GROUND TO REJECT THE BOOK S OF ACCOUNTS IN ABSENCE OF ANY SPECIFIC FINDING THAT THE BOOKS O F ACCOUNTS ARE NOT CLOSED AND COMPLETE AND THERE ARE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS. IN VIEW OF ABOVE I AM OF THE VIEW THAT THE ACTION OF THE A.O. IN REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE GROSS PROFIT IS NOT JUSTIFIED AND THE ACTION OF THE A.O. IN REJECTING T HE BOOKS OF ACCOUNTS AND ESTIMATING THE SALES IS REQUIRED TO BE CANCELLE D. 5. THE LD. CIT(A) CONTINUED TO ANALYZE TWO LOSSES C LAIMED BY THE ASSESSEE AND CONCLUDED THAT SUCH LOSSES CANNOT BE A LLOWED AS UNDER: HOWEVER I HAVE GONE THROUGH THE STATEMENT GIVEN B Y THE ASSESSEE COMPANY FOR CO RELATING ITS PURCHASES AND SALES AND I HAVE NOTICED THAT THE OPENING STOCK WHICH HAS BEEN VALUED AT RS. 4 49 05 708/- HAS BEEN PARTIALLY SOLD. IT MAY BE NOTICED THAT THE ASSESSEE HAS SOLD 3 LOTS AND THE BALANCE GOODS AVAILABLE HAS BEEN EXPORTED OUT. THE ABOVE G OODS HAS BEEN EXPORTED OUT TO THE ASSESSEE COMPANY ITSELF AND THE RE IS NO REASON THAT THE BRANCH OFFICE OF THE ASSESSEE COMPANY SHOU LD EXPORT THE GOODS OUT AT LOSS THAN THE COST AS THE BRANCH OFFIC E AND THE MAIN OFFICE IS ONE ENTITY AND ONE CANNOT MAKE PROFIT/LOS S BY TRANSFERRING FROM BRANCH IN SUCH TYPE OF EXPORT OUT. WHEN THE CO ST OF THE GOODS IN THE HAND OF THE BRANCH OFFICE IS RS.4 49 05 708/- I NCLUDING THE LICENCE PREMIUM THERE IS NO REASON THAT THE ASSESSE E SHOULD SUFFER THE LOSS IN RE EXPORTING THE ABOVE GOODS TO ITS PAR ENT COMPANY. ACCORDINGLY I AM OF THE VIEW THAT THE LOSS IN RESP ECT OF ABOVE RE EXPORT WHICH IS RS.96 85 623/- IS REQUIRED TO BE IG NORED AND WORK OUT THE PROFIT OF THE ASSESSEE COMPANY IN THE CURRE NT YEAR. NO EVIDENCE WERE GIVEN AT THE TIME OF APPEAL HEARING T HAT MARKET VALUE/REALISED VALUE IS LESS ON THE DAY OF EXPORT O UT. SIMILARLY I HAVE NOTICED THAT THE ASSESSEE HAS ALS O RE EXPORTED RS.9035564/- ON 28.6.2000 AND IN THIS RE EXPORT AL SO THE ASSESSEE COMPANY HAS SUFFERED LOSS OF RS.4 73 990/- AND MY R EASONING GIVEN ABOVE WILL HOLD GOOD FOR THIS ALSO AND AS SUCH THI S LOSS ALSO WHICH ITA NO.3234 /M/06 4 HAS BEEN CLAIMED ON ACCOUNT OF RE EXPORT TO THE PAR ENT COMPANY IS REQUIRED TO BE IGNORED. ACCORDINGLY I AM OF THE VIEW THAT THE TRADING AF FAIRS SHOWN BY THE ASSESSEE COMPANY IS REQUIRED TO BE ADJUSTED WITH TH E ABOVE LOSS WHICH IT HAS INCURRED IN RESPECT OF RE EXPORT OUT O F THE GOODS PURCHASED FROM THE ASSESSEE COMPANY BACK TO THE PAR ENT COMPANY AND THE A.O. IS DIRECTED TO ADD THE ABOVE AMOUNT TO THE BUSINESS INCOME DECLARED BY THE ASSESSEE COMPANY AND RECOMPU TED THE INCOME OF THE ASSESSEE COMPANY. IN THE RESULT THI S GROUND OF APPEAL IS CONSIDERED AS PARTLY ALLOWED. 6. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. T HE ASSESSEE REITERATED THEIR CONTENTION BEFORE THE LOWER AUTHOR ITIES AS UNDER: (I) IN THE ACCOUNTING PERIOD RELEVANT TO THE ASST. YEAR 2001-02 THE ASSESSEE COMPANY CHANGED ITS MODUS OPERANDI IN THE MATTER OF SELLING ROUGH DIAMONDS. PREVIOUSLY THE A SSESSEE USED TO PURCHASE IMPORT LICENSES ON ITS OWN ACCOUNT FOR THE PURPOSE OF IMPORTING ROUGH DIAMONDS FROM ABROAD. T HIS YEAR THE ASSESSEE HAD SOLD GOODS TO THE CUSTOMERS AGAINST THE SURRENDER OF THEIR IMPORT LICENSES AND TO THIS EXTENT THE SALE PRICE WAS REDUCED AND CONSEQUENTLY THE PROFIT MARGIN. (II) FROM THE TRADING ACCOUNT OF THE YEAR ENDED 31.3.200 0. IT CAN BE SEEN THAT THE PREMIUM PAID ON THE IMPORT LICENSE S AMOUNTING TO RS.1 37 61 162/- HAD BEEN INCLUDED AS COST OF GOODS PURCHASED AND TO THIS EXTENT VALUE OF THE CL OSING STOCK AS ON 31.3.2000 (WHICH HAD BECOME OPENING STO CK AS ON 1.4.2000) WAS INCLUSIVE OF THE PREMIUM PAID ON T HE PURCHASE OF IMPORT LICENSE. (III) THE ASSESSEE COMPANY HAD INCURRED A LOSS OF RS.96 8 5 623/- ON THE SALE OF OPENING STOCK. THIS HAD HAPPENED MA INLY ON ACCOUNT OF THE FACT THAT THE VALUE OF OPENING STOCK (AS ON 1.4.2000) WAS INCLUSIVE OF THE PREMIUM PAID ON THE PURCHASE OF IMPORT LICENSE WHEREAS THE ASSESSEE COM PANY COULD NOT REALIZE THE COST INCURRED TOWARDS THE PUR CHASE OF REP LICENSE. (IV) FOR EVERY PURCHASE OF ROUGH DIAMONDS THERE S A CORRESPONDING SALE. EACH AND EVERY PURCHASE HAD BE EN DULY ACCOUNTED FOR IN THE SALE OR IN THE CLOSING STOCK. ITA NO.3234 /M/06 5 7. THE AO HAD IGNORED THE LOSS OF RS.1 60 13 900/- FILED BY THE ASSESSEE REJECTED HIS ACCOUNTS AND ESTIMATED THE T AXABLE INCOME OF THE ASSESSEE AT RS. 17 00 890/-. THE CIT (A) HAS HELD T HAT THE BOOKS OF THE ASSESSEE CANNOT BE REJECTED. BY DOING SO HE HAS AC CEPTED THE LOSS FILED BY THE ASSESSEE AND DELETED THE INCOME OF RS. 17 00 890/- DETERMINED BY THE AO. BUT THEN HE HAS DIRECTED THE DEDUCTION O F LOSS OF RS.96 85 623/- AND RS.4 73 990/- CLAIMED BY THE AS SESSEE AS ARISING OUT OF SALE OF STOCK OF DIAMONDS FROM THE LOSS CLAI MED BY THE ASSESSEE. THIS IN OUR OPINION AMOUNTS TO ENHANCEMENT BY THE C IT(A). BUT THERE IS NOTHING ON RECORD TO SHOW THAT THE CIT(A) HAS ISSUE D NOTICE TO THE ASSESSEE ABOUT THE ENHANCEMENT AND HAD ASKED FOR TH EIR EXPLANATION. THIS IS AGAINST THE CANONS OF NATURAL JUSTICE. 8. FURTHER THE CIT (A) HAS HELD THAT THE LOSS HAS ARISEN FROM THE SALE OF DIAMONDS BY THE ASSESSEE TO ITS HEAD OFFICE AND HENCE THE LOSS CANNOT BE ALLOWED. WE FIND THAT THERE ARE NO PARTICULARS ON RECORDS ABOUT THE SALE OR THE LOSS ACCRUING TO THE ASSESSEE ON SALE O F THE OPENING STOCK. WE THEREFORE DEEM IT FIT TO REMIT THE MATTER BACK TO T HE FILES OF THE CIT(A) FOR DISPOSAL AFRESH OF THE ISSUE OF ALLOWABILITY OF LOS S OF RS.96 85 623/- AND RS.4 73 990/- CLAIMED BY THE ASSESSEE AS ARISING OU T OF SALE OF STOCK OF DIAMOND AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRESENT THEIR CASE. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 31 ST DAY OF MAY 2010 SD/- SD/- (T.R. SOOD) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 31 ST MAY 2010 RJ ITA NO.3234 /M/06 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO.3234 /M/06 7 DATE INITIALS 1 DRAFT DICTATED ON: 24.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25 . 5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______