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2017 (3) TMI 141 - ITAT KOLKATA

2017 (3) TMI 141 - ITAT KOLKATA - TMI - Addition of minor traffic violations and Distribution Charges - Held that:- It is clear from the statutory provisions of the MV Act payments made for any purpose which is an offence or which is prohibited by law and which are not compensatory in nature cannot be allowed as a deduction u/s.37(1) read with Explanation thereto. Perusal of the various statutory provisions of the MV Act under which the payment in question were made were for offences committed b .....

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e was hired by the assesee it is not possible to insist on all details being given in the voucher. The explanation of the assessee has not been found to be incorrect by the AO or CIT(A). We therefore direct that the addition sustained by CIT(A) to the extent it relates to disallowance of 10% of total expenditure of ₹ 17,07,826/- excluding the sums paid by way of penalty, be deleted. - Addition under the head "Cash Destroyed by Fire" - Held that:- As in connection with the assessees r .....

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ssee claimed to have received cash. Admittedly the AO did not take recourse to such an action but merely rejected the explanation offered by the assessee. This approach of the AO in our view was not proper. The entry relating to the loss of cash having been made in the books of account of the assessee only on 31.03.2010, in our view, is not a very vital circumstance. Thus the claim of the assessee for loss on account of cash destroyed by fire ought to have been allowed as deduction - Decided in .....

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in confirming the addition to the extent of ₹ 1,70,7801- out of the total addition of ₹ 7,32,771/- made by the A.O. on account of Distribution Charges. 3. The assessee is a company. It is engaged in the business of trading and acting as acquiring and forwarding agents. While computing the income under the head income from business the assessee claimed a sum of ₹ 17,07,826/- as distribution charges. The assessee was acting as distributor of FMCG products. The AO called upon the .....

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allowable expenditure. 2. 13,680/- 07.04.2009 No information about who received the amount. 3. 1,500/- 30.03.2010 No information about who received the amount. 4. 14,000/- 30.03.2010 No information about who received the amount. Total 32,180 4. The AO was of the view that out of the vouchers produced evidencing expenditure of ₹ 75,000/-, ₹ 32,180/- was liable to be allowed for the reasons given in the chart given above. According to the AO, the remaining expenditure under this head .....

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aid show cause notice submitted that the payment of ₹ 3,000/- is against 26 slips of ₹ 100/- each (plus incidental expenses of ₹ 400/- ) issued by the Govt. of West Bengal MTV Cell Department for the alleged minor traffic violations in respect of the delivery vans of the assessee. The Assessee submitted that these payments were not against any proved violation/infraction of law but were merely a payment in settlement of a contemplated action charging the assessee with an offenc .....

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f the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no de .....

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ut whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) of the Income-tax Act, whenever such examination reveals the concerned impost to the purely compensatory in nature. Whenever such impost is found to be of composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obliged to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse .....

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summoned from the road side parking in such emergent situations. The vehicles in question operate in the unorganized sector and do not have any office address. It was pointed out that the vehicle number are duly mentioned in the vouchers and the recipient of hire charges has also duly signed the voucher at the back. It was submitted it would be impossible for the Assessee to keep the name and address proof of each and every person with whom Business transaction is being made. Business Practice .....

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and therefore, it is not allowable. The vouchers were verified on test check basis and it is found that these are self made vouchers and it is not known who received the payments. The onus is on the assessee to substantiate its claim of expenditures and the assessee has failed to discharge its onus. Therefore, a sum of ₹ 7,32,771/-, as mentioned above is disallowed and added back to the total income of the assessee. 8. Aggrieved by the order of AO the assessee preferred appeal before CIT(A .....

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arges of ₹ 17,07,826/-.The addition made by AO was accordingly restricted to ₹ 1,17,718/-. Aggrieved by the order of CIT(A) the assessee has raised ground no.1 before the Tribunal. 9. We have heard the submissions of the ld. Counsel for the assesee, who reiterated the submissions made by the assessee before AO. The ld. DR relied on the order of CIT(A). 10. We have considered the rival submissions. As far as the disallowance of penalty of ₹ 3000 imposed for minor violations is c .....

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y with the driving regulations made by the Central Government, and shall comply with all directions given to him by any police officer for the time being engaged in the regulation of traffic in any public place. (2) In this section mandatory traffic sign means a traffic sign included in Part A of the First Schedule, or any traffic sign of similar form (that is to say, consisting of or including a circular disc displaying a device, word or figure and having a red ground or border) placed or erect .....

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hree hundred rupees. Section 122 in The Motor Vehicles Act, 1988 122. Leaving vehicle in dangerous position.-No person in charge of a motor vehicle shall cause or allow the vehicle or any trailer to be abandoned or to remain at rest on any public place in such a position or in such a condition or in such circumstances as to cause or likely to cause danger, obstruction or undue inconvenience to other users of the public place or to the passengers. Section 129 in The Motor Vehicles Act, 1988 129. .....

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provide for such exceptions as it may think fit. Explanation.- Protective headgear means a helmet which,- (a) by virtue of its shape, material and construction, could reasonably be expected to afford to the person driving or riding on a motor cycle a degree of protection from injury in the event of an accident; and (b) is securely fastened to the head of the wearer by means of straps or other fastenings provided on the headgear. Explanation to Sec.37(1) of the Act use the expression expenditure .....

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te, or contracts entered into with the object of committing an illegal act. The Hon ble Supreme Court in Haji Aziz and Abdul Shakoor Bros. v CIT Bombay City II (1961) 41 ITR 350, it was held that In our opinion, no expense which is paid by way of penalty for a breach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business. The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because .....

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re cannot be allowed as a deduction u/s.37(1) read with Explanation thereto. Perusal of the various statutory provisions of the MV Act under which the payment in question were made were for offences committed by the employees of the Assessee for which the Assessee was vicariously liable. These payments were not compensatory in nature. Therefore these sums cannot be allowed as a deduction. We uphold the order of the CIT(A) to this extent. 12. As far as the disallowance of the remaining sum sustai .....

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correct by the AO or CIT(A). We therefore direct that the addition sustained by CIT(A) to the extent it relates to disallowance of 10% of total expenditure of ₹ 17,07,826/- excluding the sums paid by way of penalty, be deleted. Ground no.1 raised by the assessee is partly allowed. 13. Ground No.2 raised by the assessee reads as follows :- 2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of ₹ 5,17,093/- made by the A.O. und .....

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of its customers had given cash of ₹ 5,17,093.09 on 13.2.2010 and the same was kept in the office attached to the warehouse for onward transmission to the head office. In the fire that broke out in the late night of 13.2.2010, the said cash realization as well as huge stock was destroyed. The entry for receipt of cash was made in the cash book on 15.2.2010. The entry for loss of cash by destruction by fire was however made only on 31.3.2010, the last date of the previous year. According to .....

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duction. The Assessee submitted that in the letter dated 16.02.2010 addressed by the Assessee to the Directorate of Fire Service, there is reference to loss of stock and market credit bills amounting to about ₹ 5 crores but no reference about the cash loss due to the simple reason that only the stock was insured with the National Insurance Co. Ltd. and the rules of the insurance co. require reports from the Fire Department and the Police Department. The Assessee brought to the notice of th .....

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.2010 praying for direction to the landlord and the Police and Fire Department to permit the Assessee and or their agents, authorised men entry into the tenanted warehouse premises. The Assessee highlighted the fact that in the said writ petition, it was clearly mentioned that three companies of the group viz., Aparna Agency Ltd., Aparna Distributors (P) Ltd. and Sales & Services were transacting business from the said premises and there was loss of stocks and market credit bill was to the t .....

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loss on account of cash was duly reflected in the final accounts of all the three companies, which totals upto ₹ 16 lakhs. With regard to entry relating to the loss of cash being made only 31/03/2010 when fire broke out on 13.02.2010, it was submitted that the Assessee was making endeavour to get ingress into the premises to ascertain the extent of loss, which was denied to the Assessee by the police authorities. This ultimately led filing of writ petition in July, 2010 i.e., after the cl .....

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levant financial year and the Assessee s claim was well within the mercantile system of accounting. 16. The AO however held that assessee filed some documentary evidence with regard to its claim for deduction on account of destruction of cash in fire but in none of the documents it could be discerned that such amount of cash was destroyed by fire. The AO also held that the reason for making entry in cash book only on 31.03.2010 was also not known. The AO therefore held that the claim of the Asse .....

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her materials brought on record. I do not find any merit in the argument put forth by the appellant. It is noted that in the documentary evidences filed by the appellant, no where it was mentioned that cash was destroyed by fire in the case of the appellant. I also find force in the contention of the AO. that if the cash was destroyed by fire on 13.02.2010, then the entry passed on 31.03.2010 on account of such loss did not reflect the correct position of cash. Further, it is not the case of the .....

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r of CIT(A) the assessee has raised ground no.2 before the Tribunal. We have heard the submissions of the ld. Counsel for the assessee, who reiterated the stand taken of the assessee as put forth before AO. The ld. DR relied on the order of CIT(A). 19. We have heard the rival submissions. It is clear from the facts available on record that there was a fire in the assessee s warehouse at Strand Road on 13.02.2010 late night. The warehouse also has an office attached to it in which the assessee ha .....

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