Resources International., Panaji V. Asst. Commissioner of Income Tax, Circle-1, Panaji., Panaji

ITA 1/PAN/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93525 (ITAT-PANAJI)
• Duration Of Justice: 8 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-06-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 02-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANGARI LD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, HON'BLE ACCOUNTANT MEMBER ITA N O . 1 /PNJ/20 07 : (A.Y 1999 - 2000 ) RESOURCES INTERNATIONAL SESA GHAR, 3 RD ENT. 2 ND FLOOR, PATTO PLAZA, PANAJI PAN : AACFR9219C ( APPELLANT) VS. ACIT, CIRCLE - 1, PANAJI (RESPONDENT) ASSESSEE BY : MIHIR NANIWADEKAR, ADV. REVENUE BY : M.R. BANGARI, LD. DR DATE OF HEARING : 08 / 06 /201 5 DATE OF PRONOUNCEMENT : 10 / 06 /201 5 O R D E R PER GEORGE MATHAN : 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), PANAJI IN APPEAL NO. 107/PNJ/06 - 07 DT. 16.10.2006 FOR THE A.Y 1999 - 2000. SHRI MIHIR NANIWADEKAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI M.R. BANGARI, LD. DR REPRESENTED ON BEHALF OF THE REVENUE. 2. IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH HAD FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 30.12.1999. IN THE COURSE OF THE ASSESSMENT, IT WAS NOTICED THAT THE ASSESSEE WAS TO PAY DEMURRAGE CHARGES TO 7 DIFFERENT PERSONS. THE ASSESSEE HAD CLAIMED EXPENSES O F THE DEMURRAGE CHARGES PAYABLE. NO AMOUNT HAD BEEN PAID. THE AMOUNT WAS ADMITTEDLY PAYABLE IN DOLLARS OUTSIDE INDIA. CONSEQUENTLY, AS NO TAX HAD BEEN DEDUCTED ON THE SAID EXPENSES, THE AO HAD INVOKED THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT AND HAD DISALLOWED THE SAME. IT WAS FURTHER 2 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) SUBMISSION THAT THE ISSUE WAS TAKEN UP IN APPEAL BEFORE THE LD. CIT(A) WHO HAD VIDE ORDER DT. 23.6.20 04 UPHELD THE DISALLOWANCE. ON FURTHER APPEAL, THE TRIBUNAL HAD VIDE ORDER IN ITA NO. 225/PNJ/2004 DT. 1.2.2006 HELD THAT AS PER THE BOARDS CIRCULAR NO. 786 DT. 7.2.2 000 THE SERVICES RENDERED OUTSIDE BECOME ALLOWABLE EXPENDITURE AND NO TDS WAS SUPPOSED T O BE DEDUCTED ON THE SAID EXPENDITURE. THEY FURTHER HELD THAT IN THE INSTANCE CASE NO SERVICES WERE RENDERED OUTSIDE AND ONLY DEMURRAGE WAS PAID. IT WAS FURTHER RECORDED THAT IT WAS NOT SHOWN WHETHER THE DEMURRAGE WAS PENAL IN NATURE OR COMPENSATORY IN N ATURE. CONSEQUENTLY, THE ORDERS OF THE LOWER AUTHORITIES WERE MODIFIED AND THE ISSUE WAS RESTORED TO THE FILE OF THE LD. CIT(A) TO DECIDE THE ISSUE DE NOVO . CONSEQUENT TO THE ORDER OF THE TRIBUNAL DT. 1.2.2006, THE LD. CIT(A) VIDE THE IMPUGNED ORDER DT. 16.10.2006 HELD THAT THE DEMURRAGE WAS COMPENSATORY IN NATURE. AS THE PAYMENT OF THE DEMURRAGE HAD BEEN REFERRED TO AN ARBITRATOR AND THE FINDING OF THE ARBITRATION AWARD WAS ISSUED ON 18.9.2001, THE LD. CIT(A) HELD THAT THE LIABILITY DID NOT CRYSTALLIZE DURING THE FINANCIAL YEAR 1998 - 99. IT WAS THE SUBMISSION THAT AGAINST THE SAID ORDER THE ASSESSEE FILED APPEAL TO THE TRIBUNAL IN ITA NO. 1/PNJ/2007 WHICH CAME TO BE DISPOSED OFF BY AN ORDER DT. 10.7.2007 WHEREIN THE TRIBUNAL HAD UPHELD THE FINDING OF THE LD. CIT(A) ON THE ISSUE. IT WAS THE SUBMISSION THAT AGAINST THE ORDER OF THE TRIBUNAL THE ASSESSEE HAD FILED AN APPEAL BEFORE THE HON'BLE JURISDICTION HIGH COURT OF MUMBAI AT GOA AND THE HON'BLE HIGH COURT IN TAX APPEAL NO. 5/2008 VIDE ORDER DT. 7.1.2015 QUASHED AND SET ASIDE THE ORDER PASSED BY THE TRIBUNAL AND HAD REMANDED THE MATTER TO DECIDE THE APPEAL AFRESH IN ACCORDANCE WITH THE LAW. IT WAS THE SUBMISSION BY THE LD. AR THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS PER THE M ERCANTILE SYSTEM OF ACCOUNTING THE EXPENDITURE IS LIABLE TO BE ALLOWED IN THE YEAR IN WHICH IT CRYSTALLIZES BEING THE YEAR 1999 - 2000. IT WAS THE SUBMISSION THAT THE ARBITRATION IN RESPECT OF THE SAID AMOUNT WAS CONCLUDED ONLY ON 18.9.2001 RELEVANT TO THE A.Y 2002 - 03 BUT THAT 3 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) DOES NOT SHIFT THE ACCRUAL OF THE LIABILITY. IT WAS THE SUBMISSION THAT THE ASSESSEE HAS ALSO SUBSEQUENTLY OFFERED THE DIFFERENCE BETWEEN THE ARBITRATION AMOUNT AND THE FINAL SETTLEMENT WHICH WAS DONE VIA ONE TIME SETTLEMENT DURING TH E A.Y 2006 - 07. IT WAS THE SUBMISSION THAT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. , AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, JUST BECAUSE THE ASSESSEE IS DISPUTING THE LIABILITY OF THE DEMURRAGE PAYMENT, IT WOULD NOT MEAN THAT THE ASSESSEE CANNOT CLAIM THE EXPENDITURE IN THE YEAR OF ITS CRYSTALLIZATION. HE REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. REPORTED IN 82 ITR 363 AS ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KALINGA TUBES LTD. REPORTED IN 218 ITR 164 AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MORVI INDUSTRIES LTD. REPORTED IN 82 ITR 835. 3. IN REPLY, THE LD. DR S UBMITTED THAT THE DECISION RELIED BY THE LD. AR ARE IN RESPECT OF STATUTORY LIABILITIES BUT THE DEMURRAGE WHICH IS BEING CLAIMED AS AN EXPENDITURE BY THE ASSESSEE WAS A CONTRACTUAL LIABILITY AND ONLY A CONTINGENT LIABILITY AS THERE WAS A DISPUTE REGARDING THE PAYMENT. IT WAS FURTHER SUBMITTED BY THE LD. DR THAT EVEN DURING THE A.Y 2006 - 07 AS PER THE STATEMENT OF THE ASSESSEE ITSELF THE PROVISIONS OF SEC. 41(1) HAD BEEN INVOKED ON ACCOUNT OF WRITE BACK OF THE EXPENDITURE. IT WAS THE SUBMISSION THAT THIS IT SELF CLEARLY SHOWED THAT THE EXPENDITURE WAS CONTINGENT AND WAS CLEARLY UNQUANTIFIED. IT WAS THE SUBMISSION THAT ONCE THE ASSESSEE COMMITS A BREACH OF THE CONTRACT AND THE MATTER IS REFERRED TO ARBITRATION AND AWARD PASSED, THE LIABILITY TO PAY SUCH DEMUR RAGE ACCRUED ONLY ON PASSING OF THE AWARD AND NOT ON THE DATE OF BREACH OF THE CONTRACT. HE PLACED RELIANCE ON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF ASUMA CASHEW COMPANY REPORTED IN 182 ITR 175 AS ALSO GRAND CASHEW CORPORATION REPOR TED IN 182 ITR 216, THE HON'BLE MADHYA PRADESH HIGH COURT DECISION IN THE CASE OF GANESH STORES REPORTED IN 162 ITR 4 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) 493 AND THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ROBERTS MCLEAN & CO. LTD. REPORTED IN 111 ITR 489. IT WAS THE FURTHE R SUBMISSION THAT DISPUTES REGARDING CONTRACTUAL LIABILITY WAS ONLY A CONTINGENT LIABILITY FOR WHICH PROPOSITION HE RELIED UPON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. REPORTED IN 266 ITR 47. IT WAS THE SU BMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE UPHELD. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTSET, IT MUST BE MENTIONED HERE THAT A PERUSAL OF THE RECORD OF THE TRIBUNAL IN THE PRESENT CASE DOES NOT SHOW OF ANY ARBITRAL AWARD OR CONTRACT BETWEEN THE ASSESSEE AND OWNER HAVING BEEN PRODUCED BEFORE THE TRIBUNAL AT THE EARLIER DATES. THE ASSESSEE HAS FILED PAPER BOOK DT. 2.6.2015 CONTAINING 20 PAGES BEING COPY OF THE AGREEMENT DT. 19.8.1999, COPY OF ADDENDUM DT. 18.4.2000 TO THE AGRE EMENT DT. 19.8.1999 RE - SCHEDULING THE PAYMENT DATES, COPY OF THE ARBITRATION AWARD DT. 18.9.2001 AND THE COPY OF THE ORDER DT. 7.1.2015 OF THE HON'BLE HIGH COURT OF MUMBAI AT GOA. ON A SPECIFIC QUERY BY THE BENCH AS TO THE CONTRACTS ENTERED INTO BY THE AS SESSEE AND THE OWNERS, MORE SPECIFICALLY CONTRACT DT. 17.2.1998 ALONGWITH ADDENDUM DT. 6.4.1998 AND SIMILARLY, COPY OF AGREEMENT DT. 19.8.1999, THE LD. AR SUBMITTED THAT THEY WERE NOT IMMEDIATELY AVAILABLE. 5. A PERUSAL OF THE ORDER OF THE LD. CIT( A), BEING THE IMPUGNED ORDER, SHOWS THAT AT PARA 4.3 THE LD. CIT(A) MENTIONS THAT THE DEMURRAGE IS PAYABLE BY THE APPELLANT FIRM AS PER THE CONTRACT BETWEEN THE APPELLANT AND THE SHIP OWNER/SHIPPING COMPANY. THE LD. CIT(A) ALSO SPECIFIES THAT THE DEMURRAG E IS USUALLY SPECIFIED IN THE CHARTER. IT IS NOT CLEAR AS TO WHICH CHARTER AGREEMENT HAS BEEN EXAMINED BY THE LD. CIT(A). IN FACT, THE CHARTER AGREEMENT ITSELF IS NOT BEFORE US. FURTHER, WHETHER THE DEMURRAGE IS CONTRACTUAL OR PENAL IN NATURE HAS NOT BE EN EXAMINED BY THE AO. THIS IS A FRESH ISSUE WHICH HAS BEEN RAISED BY THE TRIBUNAL IN ITS ORDER DT. 1.2.2006 IN ITA NO. 225/PNJ/2004. CONSEQUENTLY, 5 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) WE ARE OF THE VIEW THAT THIS ISSUE MUST BE RESTORED TO THE FILE OF THE AO FOR EXAMINATION OF ALL THE CONCE RNED DOCUMENTS INCLUDING THE CHARTER DOCUMENTS AND TO GIVE A CLEAR FINDING AS TO THE NATURE OF THE EXPENDITURE CLAIMED. HERE, IT MUST ALSO BE MENTIONED THAT THE LD. CIT(A) HAS CATEGORICALLY GIVEN A FINDING THAT THE TRIBUNAL HAS HELD THAT NO SERVICES WERE RENDERED OUTSIDE INDIA AND THEREFORE CIRCULAR NO. 786 DT. 7.2.2002 DOES NOT APPLY AND CONSEQUENTLY BY IMPLICATION MEANS THAT THE PROVISIONS OF SEC. 40(I)(A) ARE ALSO APPLICABLE AND THE APPELLANT HAS NOT COMPLIED WITH THE SAME. THIS ISSUE ADMITTEDLY HAS NO T BEEN DISCUSSED IN THE TRIBUNALS ORDER DT. 10.7.2007. THE TRIBUNAL HAS ONLY GIVEN A FINDING IN RESPECT OF THE ARGUMENTS AS TO WHETHER THE DEMURRAGE IS CONTRACTUAL OR PENAL IN NATURE AND THE YEAR IN WHICH IT IS ALLOWABLE. A PERUSAL OF THE DECISION OF TH E HON'BLE JURISDICTION HIGH COURT OF MUMBAI AT GOA SHOWS THAT THE ORDER OF THE TRIBUNAL HAS BEEN QUASHED AND SET ASIDE AND REMANDED BACK FOR DECIDING AFRESH AFTER HEARING BOTH THE PARTIES. THE LD. COUNSEL ON BEHALF OF THE ASSESSEE HAS NOT PLACED ANY ARGUM ENT ON THIS ISSUE IN RESPECT OF THE APPLICABILITY OF THE PROVISIONS OF SEC. 40(A)(I). HOWEVER, AS THE ISSUE OF NATURE OF DEMURRAGE PAYMENT IS RESTORED TO THE FILE OF THE AO FOR RE - ADJUDICATION WE ARE NOT GIVING A FINDING ON THE SAID ISSUE AND WE LEAVE ALL THE ISSUES OPEN IN RESPECT OF THE DEMURRAGE EXPENDITURE FOR RE - ADJUDICATION BEFORE THE LD. AO. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 0 /06/2015. S D / - (N.K. BILLAIYA) ACCOUNTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 1 0 /06/ 201 5 *SSL* 6 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 7 ITA NO. 1/PNJ/2007 (A.Y : 1999 - 2000) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 08/06/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09/06/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 0 9 /06/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 0 9 /06/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 0 9 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 0 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 0 /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER