TMI Blog2010 (2) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... ess loss and has to be allowed as deduction, appeal filed by the assessee is allowed. - ITA No. 4273 (Del) of 2009 - - - Dated:- 11-2-2010 - A.D. Jain, K.D. Ranjan, JJ. Piyush Kaushik, Adv., for the Appellant H.K. Lal, Sr DR for the Respondent ORDER K.D. Ranjan: This appeal by the assessee for assessment year 2006-07 arises out of the order of the ld. Commissioner of Income Tax (Appeals)-XXII, New Delhi. 2. The ground of appeal raised by the assessee reads as follows:- "That on the facts and circumstances of the case and in there law, the ld. CIT (Appeals) grossly erred in confirming additions of Rs.4,84,629.00 on account of EMD Forfeiture paid to AEPC, Ministry of Textile, Government of India." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of non-performance. The assessee claimed the amount of EMD forfeiture as deduction under section 37 of the Act. It was stated that the amount was expended wholly and exclusively for the purpose of business. The quota was allotted to the assessee on the basis of past performance/projected figures submitted by the exporters. Accordingly the assessee applied for the quota and the same was allotted. However, since the assessee could not export the amount allotted to it, the amount was forfeited. It was also submitted that forfeiture of EMD is not violation of any financial or criminal law. Therefore the amount forfeited could not be taken as penalty for violation of any law. Accordingly, the disallowance could not be made by the assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred wholly and exclusively for the purpose of business and, therefore, the same is allowable as deduction. He further submitted that the decision of Hon'ble Supreme Court in the case of Travancore Rubber and Tea Co. vs. CIT (supra) is not applicable to the facts of the case. In that case the Supreme Court was dealing with the forfeiture of deposit which was with respect to capital asset not with respect to revenue transaction as in the case of the assessee. In that case the assessee was not engaged in business of selling trees. The forfeiture of the deposit in the said case was with respect to rubber trees which constituted capital asset in the hands of the assessee whereas the case of the assessee was covered by several decisions. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earnest money deposit was forfeited by AEPC. Thus the forfeiture of earnest money deposit has occurred during the course of business activities carried on by the assessee. Hence, it is a case of business loss. The assessing officer has disallowed the amount on the ground that it was in the nature of penalty. Forfeiture of EMD on account of non-fulfilment of quota allotted to the assessee cannot be treated penal in nature, as held by the assessing officer. In the case of Tarun Commercial Mills (P) Ltd. (supra) the assessee executed a bond towards shortfall in export obligations. Under the terms of bond executed with the Govt. the assessee had option either achieve the target or pay for the shortfall. The terms of bond clearly indicated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage basis of quota allotted. Therefore, the payment of earnest money was in the course of business activities and hence, cannot be treated as capital in nature. Hon'ble Allahabad High Court in the case of CIT vs. Sugar Dealers (supra) has held that forfeiture of earnest money due to non-performance of contract to purchase rice was loss attributable to the assessee and was allowable as deduction. Similarly, in the case of Thackers H.P. and Company vs. CIT (supra) forfeiture of security by the forest department on account of non-fulfilment of contract obligation was held to be business loss allowable as deduction by Hon'ble Madhya Pradesh High Court. Similarly in the case of Naraindas Mathuradas and Co. (supra) Hon'ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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