TMI Blog2018 (4) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales tax incentive availed under the package scheme of incentive of Government of Maharashtra to be allowed - I.T.A. No.91/Nag/2011, I.T.A. No.92/Nag/2011 - - - Dated:- 16-4-2018 - Shri G. D. Agrawal, President And Shri Mahavir Singh, Judicial Member Revenue by : Dr. Milind Bhusari, CIT-DR Assessee by : Shri K.P. Dewani, Advocate ORDER Per Bench These cross appeals, by Revenue and assessee, for the assessment year 2005-06 are directed against the order of CIT(A)-II, Nagpur dated 28th February, 2011. 2. The First issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the Assessing Officer in disallowance loss claimed on account of write-off of stores lying in bonded warehouse since 1997 and surrendered the title of such goods by the assessee. For this, the assessee has raised following ground No.1:- 1. That the learned Commissioner of Income Tax-II, Nagpur has erred in not allowing loss of ₹ 34 crores on account of writing off of stores lying in bonded ware house since 1997 and surrendered the title of such goods by this appellant. 3. Brief facts relating to this issue are that the assessee impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of said outstanding liabilities which had been incurred for business purpose as claimed by the assessee. Therefore, same is disallowed and claim of ₹ 34 crores is rejected. Aggrieved, assessee preferred appeal before CIT(A). 4. The CIT(A) also confirmed the order of the AO despite the claim made that an amount of goods of ₹34 crores was lying in the custody of the Port Authorities in bonded ware house and was considered as permanently impaired in terms of Accounting Standard AS-28 as the market realizable value has been eroded. The CIT(A) observed as under:- I have carefully considered the facts of the case. It is seen from the copy of the invoices from MIs Valmet Finland produced that the equipment purchased is described as paper making machinery and equipment. As per annexure filed along with the paper book, (pg 5 of the paper book) the total value of such goods was ₹ 34. 47 crores and payment has been made on 1319195 and 2113/97 towards this Further while the remittances were made as far back as F.Y1995-96 and F.Y1996-97, it is not clear as to why the goods were retained in the bonded ware house without being cleared. Although the assessee has stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elinquished in the FY 2001-02 the assessee is not entitled to carry the value of these goods at cost in the balance sheet after FY 2001-02. Therefore, the claim of the appellant that write off of impaired asset is in accordance with AS 28, is untenable and incorrect. 3.5 In this context, it is relevant to examine claim of relinquishment of the title over the imported goods by the assessee. The appellant, vide letter dt.17th July, 2001 addressed to the Commissioner of Customs. Mumbai has given intimation regarding Relinquishing Title' to the goods paper machinery imported, and stated as follows We had imported the above mentioned machinery and equipment and filed Bill of Entry No.000321 dt.03.0.19971GM1Item No. NS-559173 dt 06 02.1997 for the clearance thereof. Out of the above a part of the consignment was cleared. In respect of the remaining goods lying in the port, and covered by home consumption Bill of Entry No. 000321 dt.03 07 1997 1GM/Item No NS-559173 dt.06 02 1997. no order for clearance under section 47 of Customs Act. 1962 has been passed. We hereby relinquish our title to these goods in accordance with Sub-section (2) of section 23 of Custom Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be liable to pay duty thereon] [Provided further that the owner of any such warehouse goods shall not be allowed to relinquish his title to such goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force.] Therefore, it is seen that on initiation of proceedings regarding relinquishment of goods an order is passed by the concerned authorities to levy dues from the concerned party Appellant has not produced any copy of order by the Customs authorities ufs.68 of Customs Act regarding relinquishment of goods worth ₹ 34 crores which is necessary to show that there was an actual relinquishment in accordance with the statutory provision of the Customs Act. The claim of the appellant is unilateral Appellant has not produced any evidence of pending proceedings to recover statutory dues by the customs or port authorities. The entire transaction appears to be a questionable one and the assessee claim is full of inconsistencies and without even a shred of evidence. To conclude, it is seen that the assessee's claim is not tenable for the following reasons 1) As per the invoice of Valmet Finland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 299(Calcutta) CIT vs. Anjani Kumar Co. Ltd. (2003) 259 ITR 114 (Raj.) CIT vs Sales Magnesite (Pvt.) Ltd. (1995) 214 ITR 0001 (Bom.) Zenith Steel Pipes Ltd. vs. CIT (1990) 186 ITR 0594 (Born.) ITAT order in the case of M/s Royal Calcutta Turf Club in ITA No 231/Kol/2013 Binani Cement Ltd. vs. CIT (2016) 380 ITR 116 (Cal.) 7. He explained that the ClT(A) has observed that assessee has relinquished the asset in FY 2001-02 no order u/s 68 of Custom Act is submitted. Facts are that amount is written off in books during the year is not disputed loss suffered by assessee is also not disputed. He stated that the Books of accounts are not rejected and hence, there is no justification for non-allowance of such deduction. Allowance of loss in the year of write off cannot be denied. Assessee is corporate entity. There is no variation in the tax rate. In fact income determined u/s 115JB of the Act will remain same. No prejudice came to revenue in this year but it will effect only carried forward loss. 8. On the other hand, the learned CIT DR supported the orders of the lower authorities and argued that the assessee has already relinquished the title ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that at a material time, the stores and spares were used and/or ready for use as and when need had arisen. 10. It is fact that the assessee had incurred expenses when materials were imported. Admittedly expenses incurred for such import was for the purpose of business pending capitalization i.e. utilization thereof. Thus, over the years, material so imported irrespective of their cost, was in use in wider sense i.e. a passive use by assessee and in reality, as and when required basis. However, the assessee relinquished the right title to those goods in accordance with sub-section (2) of section 23 of Custom Act. 1962 considering goods so lying with the Port Authorities had lost its life for use in the assessee's business. Moreover, payments towards insurance, ware house rent and other charges would become uneconomic in true commercials sense. Therefore, it is a business loss which is allowable as per ordinary commercial principle in computing profit. Any reference to book entry divorced from the reality and surrounding circumstances, even if opposed to principle of accountancy, should not be a factor in order to decide the true character of income and or loss. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 283885342 2838.85 Relinquished 2. Interest on custom duty 135.00 3. BPT charges 354.00 4. Shipping Charges 25.00 5. Other Charges 47.16 3400.02 BPT (Bombay Port Trust Charges) includes warehouse, Demurrages and Ground Rent. 11. In the given facts of the case, we have gone through the decision of Bombay High court in the case of CIT vs. Sales Magnesite (P.) Ltd [1995] 214 ITR 1 (Bom, wherein Hon ble Bombay High Court has considered the issue of commercial e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubjective standard of reasonableness of the revenue. As observed by the Supreme Court in Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT [1964] 56 ITR 52 , the question must be viewed in the larger context of business necessity or commercial expediency. No abstract or pedantic view can be taken in the matter. 10. Applying these tests to the facts of the present case, it is clear that the payment of compensation made by the assessee to its erstwhile sole selling agents for loss of sole selling agency is allowable as a deduction under section 37 in computation of the income of the assessee. This is particularly so in view of the following findings of fact arrived at by the Tribunal which are not subject-matter of challenge in this reference application : (i) The factum of payment is proved. (ii) There is nothing on record to show that payment was illusory or that the assessee's claim was mala fide. (iii) There is no evidence on record to show that the transaction was a got-up affair to hoodwink the revenue. (iv) The claim of the sole selling agents is not sham. (v) The compensation has been given in the light of the opinion of the solicitors who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of its manufacturing business. The said consignment was received at Bombay port but the same was not traceable. The assessee entrusted the work of tracing the consignment to Messrs. Insimax Corporation, Bombay, who were paid their fees of ₹ 3,500. The said consignment was traced but the assessee found that the spare parts imported by it were rusted and it was not worthwhile to clear them after paying duty, wharfage, demurrage, etc. Accordingly, it decided not to take delivery of the goods and wrote off the amount of ₹ 43,168 being the purchase price of the spare parts and ₹ 3,500 being the fees paid to Messrs. Insimax Corporation, the total of which came to ₹ 46,668 as business loss. The Income-tax Officer rejected its claim on the ground that the loss was a loss on account of non- delivery by the assessee and it was not a loss in the normal course of carrying on of its business. The Appellate Assistant Commissioner confirmed the disallowance observing that, without taking actual delivery and putting the spare parts to test, it could not be possible for any one to say that the goods were heavily rusted and extensively deteriorated. On further appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the whole of this amount can be permitted as an allowance to the assessee. If we are right in the view that we have taken that what is claimed as a trading loss is not a permissible deduction under section 10 (2) (xv), then the material date obviously is not the date when the embezzlement took place but the material date is when the loss is caused. So long as there is any possibility of the money being recovered from the employee who has embezzled the money, there is no loss to the assessee. It is only when it is clear that the money cannot be recovered that the loss is caused. In this case it is in evidence that the assessee wrote off this amount of ₹ 32,000 in the year of account. The Advocate-General says that there is no finding that this amount, there is prima facie evidence that that amount is irrecoverable. Undoubtedly the department can rebut the prima facie inference by drawing attention to circumstances or by leading some evidence to suggest that the position taken up by the assessee was not correct. In this case there is no evidence whatsoever on the record except the fact that the assessee wrote off this amount in the year of account. In the absence wrote off this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain as to how he is entitled for this write off. The assessee explained that it has claimed bad debt written off amounting to ₹ 1,47,51,335/- as the assessee has actually written off in the books of account and the same are in relation to trade debtors which has been claimed as bad. The assessee submitted complete details of bad debts party-wise before the Assessing Officer as well as before the learned CIT(A) and now before us in its paper book and the details are as under :- Customer Name Amount Rs. Nature Jai Dayal Kapoor 85,96,540 Paper Debtors Perfect Impressions, Faridabad 5,550/- Paper Debtors Hira Printing Press, Bombay 1,42,241/- Paper Debtors Kapadia Paper Mart 1,49,140/- Paper Debtors Rajesh Brothers 91,737/- Paper Debtors Sibbal Brothers 1,07,061/- Paper Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se amounts relate to trade debtors. As per the provisions of section 36(2), to claim an amount as bad debt, the amount is required to be written off as a irrecoverable in the accounts of the previous year and should have been taken into account in computing the income of the assessee of that previous year or in any earlier previous year. It is clarified by the appellant that the amount relating to paper debtors has been included in the computation of income in earlier years. During the year under consideration these amounts have been written off in the books as irrecoverable. Therefore, I am of the considered view that the appellant is entitled to write off an amount of ₹ 1,31,34,610/- pertaining to trade debtors. A.O. is directed to allow this amount accordingly. As for the balance of ₹ 16,20,186/-, these pertain to loans and advances made by the appellant, and these amounts have not been taken into account for computing the income of the assessee in any previous year. Therefore, the claim to the extent of ₹ 16,20,186/- cannot be allowed u/s 36(2) of I.T. Act. This ground is, therefore, partly allowed. Aggrieved, now both Revenue and assessee, both, are in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to dispose of the objections of the assessee in respect to this ground following Tribunal s directions for assessment year 2004-05. We do not find any infirmity in the directions of the CIT(A) and the same are confirmed. This issue of Revenue s appeal is dismissed. 22. The next issue in this appeal of Revenue is against the order of learned CIT(A) treating the sales tax incentive availed under package scheme of incentive of Government of Maharashtra as capital receipt not chargeable to tax instead of revenue receipt treated by the Assessing Officer. For this, the Revenue has raised the following ground No.3 :- 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that sales tax incentive availed under the package scheme of incentive of Government of Maharashtra is capital receipt and is not chargeable to tax. 23. Brief facts are that the assessee claimed the incentive received under Package Scheme of Incentives, 1993 of Government of Maharashtra for setting up of industrial unit. The assessee made this claim on the basis that the incentive scheme as precisely mentioned in the eligibility certificate issued by SICOM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 15.04.2009 that incentive received under the Package Scheme of Incentives of Govt. of Maharashtra is capital receipt and not chargeable to tax. 9.1 Respectfully following the same I hold that sales tax incentives availed under the Package Scheme of Incentives of Govt. of Maharashtra is capital receipt and not chargeable to tax. The ground of appeal of assessee is allowed. Aggrieved, now Revenue is in second appeal before the Tribunal. 25. After hearing rival contentions and going through the facts and circumstances of the case, we find that this issue is covered by the Tribunal s decision in assessee s own case in ITA No.332/Nag/2014 for assessment year 2008-09 vide order dated 24th November, 2015 wherein further the Tribunal has followed the order of the Coordinate Bench in assessee s own case for assessment year 2006-07 in ITA No.106/Nag/2011, order dated 5th June, 2015. Respectfully following the decision of Coordinate Bench of the Tribunal in earlier years, we confirm the order of CIT(A) and this issue of Revenue s appeal is dismissed. 26. The next issue in this appeal of the Revenue is against the order of CIT(A) in deleting the addition made by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,136/- is of the nature of capital receipt and the same has to be reduced for the purpose of determining the book profit u/s 115JB of the I.T. Act. 30. We find that this issue is also covered by the decision of the Tribunal in assessee s own case for assessment year 2004-05 in ITA No.226/Nag/2008, order dated 12th August, 2009. We find that CIT(A), following Tribunal s order, allowed the claim of the assessee by observing in paragraph 15.1 as under :- 15.1 I have considered the submissions made by counsel of the assessee and perused the assessment order. The A.O. has discussed the addition at para 20C of assessment order. The A.O. has held that sales tax incentive availed under the Package Scheme of Incentives of Govt. of Maharashtra is revenue receipt and same cannot be considered for reduction for the purpose of provisions of section 115JB of I.T. Act 1961. Similar issue was considered by Hon ble CIT(A) in the case of assessee for the assessment year 2004-05 at para 16 of the assessment order. The CIT(A) after considering the facts in details has held that sales tax incentives have got to be reduced from net profit as per profit loss account to determine the book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated that this issue covered in assessee s own case for assessment year 2006-07 in ITA No.93/Nag/2011 vide order dated 5th June, 2015 wherein the Tribunal vide Paragraph 15 and 16 has adjudicated this issue, whereby this issue is restored to the Assessing Officer to decide in terms of the directions of the Tribunal. The Tribunal, vide paragraph 15 16, has directed as under :- 15. We have heard both the sides at length and perused the material placed before us. At the outset, it is worth to mention that the AO as well as CIT(A) both have not mentioned the nature of the superannuation fund. On one hand, the AO has mentioned that the superannuation fund is related to erstwhile Built Graphics Paper Ltd., amalgamated with the assessee company, but, on the other hand, the assessee has submitted before us that the nature of superannuation fund was a contribution to LIC for the welfare of the employees in the form of superannuation fund. Therefore, the correct nature of fund is yet to be ascertained, only then it can be decided that the contribution in question do not fall under the category as prescribed u/s 36(1)(iv) of the I.T. Act and it qualifies under the general provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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