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TMI Blog2021 (8) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... nt passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 19/03/2014 by the ld. Dy. Commissioner of Income Tax (OSD)-10(3), Mumbai (hereinafter referred to as ld. AO). ITA No.401/Mum/2020 This appeal in ITA No.401/Mum/2020 for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/ACIT-15(1)(2)/IT-235/15-16 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2015 by the ld. Asst. Commissioner of Income Tax-15(1)(2), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. 2. With the consent of both the parties, the appeal for the Asst Year 2010-11 in ITA No. 399/Mum/2020 is taken as the lead year and the decision rendered thereon would apply with equal force for other assessment years also in respect of identical issues , except with variance in figures. 3. The Ground Nos. 1 to 4 and 11 raised by the assessee for the Asst Year 2010-11 were st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation regarding adherence to a particular quality of service of fuel efficiency. Hence it is payment made for breach of contractual obligation by the assessee. These facts are not disputed by the revenue. Hence we hold that any payment made for breach of contractual obligation in the form of liquidated damages, cannot be construed as penal in nature. Hence the provisions of Explanation 1 to section 37(1) of the Act cannot be brought into operation at all in the facts of the instant case. Accordingly, we direct the ld AO to grant deduction of Rs. 25,983/- towards liquidated damages. 4.3. We find that the assessee had remitted the VAT dues to the Government with some delay for which it had duly suffered interest upto the date of payment. This interest payment of Rs. 76,620/- is purely compensatory in nature and becomes an allowable deduction. The same cannot be construed as penal in nature and does not fall within the provisions of Explanation 1 to section 37(1) of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of the Hon‟ble Supreme Court in the case of Lachmandas Mathuradas reported in 254 ITR 799 (SC) , wherein it was held that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be recovered from the concerned parties, the same were sought to be written off by the assessee by debiting Bad debts written off. The ld AO proceeded to disallow the same by stating that the same falls within the Explanation 1 to section 37(1) of the Act. This was upheld by the ld CITA. We find that under invoicing of sale amounts got triggered pursuant to the Central Excise Audit conducted in earlier years and Audit Report dated 16.12.2005 was submitted wherein the under invoicing of sales to the extent of Rs. 39 lacs was pointed out to the assessee, which fastened an excise duty liability of Rs. 6,36,480/- on the assessee. We find that this payment of Rs. 6,36,480/- towards excise duty does not include any penalty for any violation of any law in force. Since the additional excise duty liability fastened on the assessee company could not be recovered from the customers, but still the assessee had to pay the same to the Government, the said excise duty of Rs. 6,36,480/- was duly paid by the assessee and claimed as deduction during the year on the ground of bad debts written off. This is in our considered opinion, is squarely allowable as deduction both u/s 43B as well as u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for the write-off and decisions relied upon by him for allowability of the same, as under:- Sr. No. Particulars Amount (In Rs.) Nature of advance/deposit Comments 1. Recoverable from G Vijay Kumar (Director of the appellant) 12,18,608 1. Security deposit for Vashi and Bangalore office - Rs. 6,75,000 2. Deposit for vehicle - Rs. 46,315 3. Funds were utilized for the following purpose: * His personal TDS liability-Rs. 22,613 * Travel Credit Card bill, car Expenses-Rs. 2,37,647 * Advance for Import transaction Cheque encashed in his personal account -Rs. 1,72,850 1. Reliance is placed on the Mumbai Tribunal decision in case of United Motors (India) Ltd. 6 taxmann.com 32 for written off of security deposit paid for office premises is loss incidental to business and allowed as business loss. 2. Vehicle deposit was given for official purpose and accordingly, advance written off is business loss. 3. Funds of the appellant given for official purpose were wrongly encashed / utilized by Directors for his personal purposes. The same could not be recovered from the Director and hence, written off. In this connection, the appellant places reliance on the Calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the year of assessability is unnecessary and should be avoided. 11. Allcargo Global Logistic Limited 2,33,760 Write-off pertains to amount could not recovered in respect of sale of spare parts and services offered to tax during the financial years 2008-09 and 2009-10 Journal entry in respect of amount written off is enclosed at Page 38 of the enclosed Compilation. 12. Visakapatnam Port Trust 4 Rounding off difference 13. Se abridge Maritime Agencies Pvt. Ltd. 22 Rounding off difference 14. Macgregor Hydramarine AS - STPI 165 Rounding off difference 15. Write-off against Pune Office 21,192 Advance for petty cash expenses Various cash expenses of Pune office for which no vouchers were booked and hence, written-off. 16. Hind Terminal Pvt. Ltd. (727) Rounding off difference 17. Immaterial rounding off differences (3) Rounding off difference Total 24,77,225 6.3. We find that the aforesaid deposits / advances written off were sought to be disallowed by the ld AO on the ground that no evidences were furnished by the assessee. But we find that from the bare perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, "The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision." 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 10 raised by the assessee is allowed for statistical purposes. 9. The Ground No. 12 raised by the assessee is with regard to quantification of carry forward of losses. At the time of hearing, the ld AR stated that the assessee had already preferred a rectification application u/s 154 of the Act before the ld AO which is pending adjudication. Hence we direct the ld AO to dispose of the said rectification application u/s 154 of the Act while passing the order giving effect to this tribunal order. The ld AO is also directed to determine the figure of carry forward of losses in accordance with law. Accordingly, the Ground No. 12 raised by the assessee is allowed for statistical purposes. 10. The Ground No. 13 raised by the assessee is with regard to granting of interest u/s 244A of the Act. At the time of hearing, the ld AR stated that the assessee had already preferred a rectification application u/s 154 of the Act before the ld AO which is pending adjudication. Hence we direct the ld AO to dispose of the said rectification application u/s 154 of the Act while passing the order giving effect to this tribunal order. The ld AO is also directed to grant interest u/s 244A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to Ground No. 7 raised for Asst Year 2010-11 and hence the decision rendered thereon would apply with equal force for this Asst Year also , except with variance in figures. 16. The Ground No. 8 raised by the assessee is with regard to deduction for share issue expenses. 16.1. We have heard the rival submissions and perused the materials available on record. We find that during the year under consideration the assessee had incurred an amount of Rs. 40,00,020/- towards share issue expenses. In the return of income, it had disallowed only an amount of Rs. 8,00,000/-. Hence the ld AO disallowed the remaining sum of Rs. 32,00,020/- in the assessment as the same was incurred towards stamp duty and filing fees for increase in authorised share capital of the assessee company. This action was upheld by the ld CITA. We find that there is no dispute that the amounts spent on account of share issue expenses were incurred only for increasing the authorised share capital of the assessee company. We find that the Hon‟ble Supreme Court in the case of Brooke Bond India Ltd vs CIT reported in (1997) 12 SCL 83 (SC) dated 27.2.1997, had held that expenditure incurred on issuing share to incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had filed its reply vide letter dated 14.3.2016 stating that there were multiple accounts grouped under the head "Other Expenses‟ and provided account wise ledger extract for each of the accounts. But in the assessment order, the ld AO observed that no explanation was offered by the assessee regarding provision for warranties to the tune of Rs. 20,54,889/- and hence proceeded to disallow the same on that count. The main grievance of the assessee was that no opportunity was provided to the assessee in this regard by the ld AO in the assessment proceedings. We find that the assessee had furnished detailed explanation with regard to the provision for warranties before the ld CITA together with the basis of making the provision, its allowability as deduction in the earlier assessment years and with various decisions of Hon‟ble Supreme Court and Hon‟ble High Courts. We find that the ld CITA had simply brushed aside all the arguments of the assessee and made general observations which are not at all germane to the issue in dispute before him and upheld the action of the ld AO. We find that since sufficient opportunity was not given to the assessee by the ld AO in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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