M/s Aparna Agency Ltd., Kolkata V. ITO, WD-12(3), KOLKATA, Kolkata

ITA 1010/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9326 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2014
• Court: TRIBUNAL
• Department Lawyers: A K SINHA
• Keywords: Corroborative evidences; Capital expenditure
• Section: 37(1)

Judgement Text

1 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM ] ITA NO.1010/KOL/2014 ASSESSMENT YEAR : 2010-11 M/S. APARNA AGENCY LTD. -VERSUS- I.T.O., WARD-12( 3), KOLKATA KOLKATA (PAN:AACCA 1096 K) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SUBASH AGARWAL, ADVOCAT E FOR THE RESPONDENT: SHRI A.K.SINHA, JCIT DATE OF HEARING : 16.02.2017. DATE OF PRONOUNCEMENT : 01.03.2017. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 28.03.2014 OF CIT(A)-XII, KOLKATA RELATING TO A.Y.2010-11. 2. GROUND NO.1 RAISED BY THE ASSESEE READS AS F OLLOWS :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.1,70,7801- OUT OF THE TOTAL ADDITION OF RS.7,32,771/- MADE BY THE A.O. ON ACCOU NT 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 TH E INCOME UNDER THE HEAD INCOME FROM BUSINESS THE ASSESSEE CLAIMED A SUM O F RS.17,07,826/- AS DISTRIBUTION CHARGES. THE ASSESSEE WAS ACTING AS DISTRIBUTOR OF FMCG PRODUCTS. THE AO CALLED UPON THE ASSESSEE TO FURNISH VOUCHERS IN SUPPORT OF THE EXPENSES. SINCE THE VOUCHERS IN SUPPORT OF THE CLAIM WAS VOLUMINOUS, THE ASSESSE E PRODUCED VOUCHERS TO THE EXTENT OF RS.75,000/- WHICH WAS VERIFIED ON A TEST CHECK B ASIS BY THE AO. ON SUCH TEST CHECKING, THE AO FOUND THE FOLLOWING DISCREPANCY IN FOUR OF THE VOUCHERS PRODUCED BY THE ASSESSEE :- 2 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 SL.NO. AMOUNT (IN RS.) DATE DISCREPANCIES 1. 3,000/- 21.04.2009 THE PAYMENTS WERE MADE TO THE GOVT. OF WEST BENGAL FOR VIOLATION OF LAW, WHICH IS NOT AN 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 VOUCHE RS PRODUCED EVIDENCING EXPENDITURE OF RS.75,000/-, RS.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 WOULD ALSO BE OF THE SAME PATTERN AS THE EXPEN DITURE WHOSE VOUCHERS WERE VERIFIED ON A TEST CHECK BASIS. ACCORDING TO THE A O THEREFORE THE SAME RATIO OF DISALLOWANCE OF EXPENSES AS WERE MADE ON EXPENDITUR E VERIFIED ON TEST CHECK BASIS SHOULD BE MADE. APPLYING THE SAME RATIO, THE DISAL LOWANCE OUT OF THE DISTRIBUTION CHARGES OF RS.17,07,826/- WOULD BE RS.7,32,771/-. T HE AO ISSUED A SHOW CAUSE NOTICE PROPOSING TO DISALLOW A SUM OF RS.7,32,771/-. 5. THE ASSESSEE IN REPLY TO THE AFORESAID SHOW CAU SE NOTICE SUBMITTED THAT T HE PAYMENT OF RS. 3,000/- IS AGAINST 26 SLIPS OF RS. 100/- EACH (PLUS INCIDEN TAL EXPENSES OF RS.400/- ) ISSUED BY THE GOVT. OF WEST BENGAL MTV CELL DEPAR TMENT 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 CONTEM PLATED ACTION CHARGING THE ASSESSEE WITH AN OFFENCE. IT WAS SUBMITTED THAT TH E PAYMENT OF FINE WAS NOT EQUIVALENT TO PROOF OF GUILT. THE PAYMENT WAS MADE PURELY WITH A VIEW TO AVOID PROLONGED LITIGATION, SAVE TIME AND LITIGATION COST. THEREFO RE THE PAYMENT IN QUESTION CANNOT BE SAID TO BE A PAYMENT WHICH IS HIT BY EXPLANATION TO SEC.37(1) OF THE ACT WHICH READS AS FOLLOWS: GENERAL. 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE 3 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. EXPLANATION 1. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT 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 T HE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE M ADE IN RESPECT OF SUCH EXPENDITURE. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. PARTHASARATHY (MAD) 212 ITR 105 (MAD.), WHEREIN IT WAS HELD THAT FOR DECIDING THE QUESTION WHETHER AN EXPENDITURE IS HIT BY EXPLANATI ON1 TO SEC.37(1) ON HAS TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUT E, PROVIDING FOR PAYMENT OF SUCH IMPOSTS NOTWITHSTANDING THE NOMENCLATURE OF TH E IMPOST AS GIVEN BY THE STATUTE, TO FIND OUT 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 IMP OST TO THE PURELY COMPENSATORY IN NATURE. WHENEVER SUCH IMPOST IS FOU ND TO BE OF COMPOSITE NATURE, THAT IS, PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE, THE AUTHORITIES ARE OBLIGED TO BIFURCATE THE TWO COMPON ENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY I N NATURE AND REFUSE TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. 6. WITH REGARD TO THE OTHER THREE VOUCHERS OF RS. 13,6 80/-, RS. 1,500/- AND RS. 14,000/- WHICH, ACCORDING TO THE AO DID NOT CONTAIN ANY INFORMATION AS TO WHO RECEIVED THE AMOUNT, IT WAS SUBMITTED THAT THESE VO UCHERS PERTAINED TO PAYMENTS IN RESPECT OF HIRE CHARGES PAID FOR THE CARRIAGE OF GO ODS TO THE OUTSIDE VEHICLES TAKEN ON HIRE WHEN ASSESSEES OWN VEHICLES WERE NOT SUFFICIE NT DUE TO PRESSURE OF WORK. THE VEHICLES WERE SUMMONED FROM THE ROAD SIDE PARKING I N SUCH EMERGENT SITUATIONS. THE VEHICLES IN QUESTION OPERATE IN THE UNORGANIZED SEC TOR 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 SIG NED THE VOUCHER AT THE BACK. IT WAS SUBMITTED IT WOULD BE IMPOSSIBLE FOR THE ASSESSEE T O KEEP THE NAME AND ADDRESS PROOF 4 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 OF EACH AND EVERY PERSON WITH WHOM BUSINESS TRANSAC TION IS BEING MADE. BUSINESS PRACTICE IS TO BE CONSIDERED BEFORE QUESTIONING ANY BUSINESS EXPENSE. SO, ALL THE THREE VOUCHERS AS MENTIONED ABOVE ARE FOR THE BUSINESS PU RPOSE AND GENUINE IN NATURE. IN THE CIRCUMSTANCES, NO DISALLOWANCE IS CALLED FOR. 7. THE AO HOWEVER DID NOT DEAL WITH THE ABOVE OBJE CTIONS SPECIFICALLY AND HE DISALLOWED A SUM OF RS.7,32,771/- OBSERVING AS FOLL OWS: THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED CAREFULLY. IN RESPECT OF PAYMENT TO GOVT: IS IT SEEN THAT THE PAYMENT WAS IN THE NATURE OF PENALTY 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 RS.7,32,771/-, AS MEN TIONED ABOVE IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 8. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE PR EFERRED APPEAL BEFORE CIT(A). THE CIT(A) WAS OF THE VIEW THAT THE DISALLOWANCE OF RS. 3,000/- FOR MINOR TRAFFIC VIOLATIONS HAD TO BE DISALLOWED FOR THE REASONS GIVEN BY THE A O. WITH REGARD TO THE REMAINING DISALLOWANCE CIT(A) WAS OF THE VIEW THAT THE SAMPLE CHOSEN BY THE AO WAS A VERY SMALL SAMPLE AND ON THAT BASIS THE QUANTUM OF EXPEN SES DISALLOWED BY THE AO WAS ON THE HIGHER SIDE. THE CIT(A) WAS OF THE VIEW THAT IN THE GIVEN CIRCUMSTANCES OF THE CASE IT WOULD BE JUST AND PROPER TO DISALLOW 10% OF THE DISTRIBUTION CHARGES OF RS.17,07,826/-.THE ADDITION MADE BY AO WAS ACCORDIN GLY RESTRICTED TO RS.1,17,718/-. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HAS R AISED GROUND NO.1 BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUN SEL 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 F AR AS THE DISALLOWANCE OF PENALTY OF RS.3000 IMPOSED FOR MINOR VIOLATIONS IS CONCERNE D, IT IS NECESSARY TO SEE THE PROVISIONS OF SEC.119 OF THE MOTOR VEHICLES ACT, 19 88 (MV ACT), IN THE LIGHT OF THE 5 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 VARIOUS VIOLATIONS FOR WHICH THE PAYMENT IN QUESTIO N WAS MADE BY THE ASSESSEE. SOME OF THE SECTIONS OF THE MV ACT WHICH HAVE BEEN QUOTED IN THE BILLS EVIDENCING PAYMENT OF THE AFORESAID SUMS READS THUS: 119. DUTY TO OBEY TRAFFIC SIGNS. (1) EVERY DRIVER OF A MOTOR VEHICLE SHALL DRIVE THE VE HICLE IN CONFORMITY WITH ANY INDICATION GIVEN BY MANDATORY TRAFFIC SIGN AND IN C ONFORMITY WITH THE DRIVING REGULATIONS MADE BY THE CENTRAL GOVERNMENT, AND SHA LL COMPLY WITH ALL DIRECTIONS GIVEN TO HIM BY ANY POLICE OFFICER FOR THE TIME BEI NG ENGAGED IN THE REGULATION OF TRAFFIC IN ANY PUBLIC PLACE. (2) IN THIS SECTION MANDATORY TRAFFIC SIGN MEANS A T RAFFIC SIGN INCLUDED IN PART A OF THE FIRST SCHEDULE, OR ANY TRAFFIC SIGN OF SIMIL AR 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 ERECTED FOR THE PURPOSE OF REGULATING MOTOR VEHICLE TRAFFIC UNDER SUB-SECTION (1) OF SECTION 116. SECTION 177 IN THE MOTOR VEHICLES ACT, 1988 177. GENERAL PROVISION FOR PUNISHMENT OF OFFENCES. WHOEVER CONTRAVENES ANY PROVISION OF THIS ACT OR OF ANY RULE, REGULATION OR NOTIFICATION MADE THEREUNDER SHALL, IF NO PENALTY IS PROVIDED FOR THE OFFENCE BE PUNISHABLE FOR THE FIRST OFFENCE WITH FINE WHICH MAY EXTEND TO ONE HUNDRED RUPEES, A ND FOR ANY SECOND OR SUBSEQUENT OFFENCE WITH FINE WHICH MAY EXTEND TO TH REE HUNDRED RUPEES. SECTION 122 IN THE MOTOR VEHICLES ACT, 1988 122. LEAVING VEHICLE IN DANGEROUS POSITION.NO PERS ON IN CHARGE OF A MOTOR VEHICLE SHALL CAUSE OR ALLOW THE VEHICLE OR ANY TRA ILER TO BE ABANDONED OR TO REMAIN AT REST ON ANY PUBLIC PLACE IN SUCH A POSITI ON OR IN SUCH A CONDITION OR IN SUCH CIRCUMSTANCES AS TO CAUSE OR LIKELY TO CAUSE D ANGER, OBSTRUCTION OR UNDUE INCONVENIENCE TO OTHER USERS OF THE PUBLIC PLACE OR TO THE PASSENGERS. SECTION 129 IN THE MOTOR VEHICLES ACT, 1988 129. WEARING OF PROTECTIVE HEADGEAR.EVERY PERSON D RIVING OR RIDING (OTHERWISE THAN IN A SIDE CAR, ON A MOTOR CYCLE OF ANY CLASS O R DESCRIPTION) SHALL, WHILE IN A PUBLIC PLACE, WEAR 1[PROTECTIVE HEADGEAR CONFORMING TO THE STANDARDS OF BUREAU OF INDIAN STANDARDS]: PROVIDED THAT THE PROVISION OF T HIS SECTIONS SHALL NOT APPLY TO A PERSON WHO IS A SIKH, IF HE IS, WHILE DRIVING OR RI DING ON THE MOTOR CYCLE, IN A PUBLIC PLACE, WEARING A TURBAN: PROVIDED FURTHER TH AT THE STATE GOVERNMENT MAY, BY SUCH RULES, PROVIDE FOR SUCH EXCEPTIONS AS IT MA Y 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 MOTO R 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. 6 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 EXPLANATION TO SEC.37(1) OF THE ACT USE THE EXPRESS ION EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW THE WORD OFFENCE IS NOT DEFINED IN THE INCOME TAX ACT. HOWEVER, IT IS DEFINED IN SE CTION 3(38) OF THE GENERAL CLAUSES ACT, 1887 AS FOLLOWS: OFFENCE SHALL MEAN ANY ACT OR OMISSION MADE PUNIS HABLE BY ANY LAW FOR THE TIME BEING IN FORCE; . THE EXPRESSION PROHIBITED BY LAW , TOO, IS NO T DEFINED IN THE INCOME TAX ACT. IT MAY BE VIEWED EIT HER AS AN ACT ARISING FROM A CONTRACT WHICH IS EXPRESSLY OR IMPLIEDLY PROHIBITED BY STATUTE, OR CONTRACTS ENTERED INTO WITH THE OBJECT OF COMMITTING AN ILLEGAL ACT. THE H ONBLE 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 EXCLUSIV ELY LAID FOR THE PURPOSE OF THE BUSINESS. THE DISTINCTION SOUGHT TO BE DRAWN BETWEE N A PERSONAL LIABILITY AND A LIABILITY OF THE KIND NOW BEFORE US IS NOT SUSTAINA BLE BECAUSE ANYTHING DONE WHICH IS AN INFRACTION OF THE LAW AND IS VISITED WITH A PENA LTY CANNOT ON GROUNDS OF PUBLIC POLICY BE SAID TO BE A COMMERCIAL EXPENSE FOR THE P URPOSE OF A BUSINESS OR A DISBURSEMENT MADE FOR THE PURPOSES OF EARNING THE P ROFITS OF SUCH BUSINESS. 11. IT IS CLEAR FROM THE STATUTORY PROVISIONS OF T HE MV ACT AS WELL AS THE LAW LAID DOWN IN JUDICIAL PRONOUNCEMENTS THAT 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 WIT H EXPLANATION THERETO. PERUSAL OF THE VARIOUS STATUTORY PROVISIONS OF THE MV ACT UNDE R WHICH THE PAYMENT IN QUESTION WERE MADE WERE FOR OFFENCES COMMITTED BY THE EMPLOY EES OF THE ASSESSEE FOR WHICH THE ASSESSEE WAS VICARIOUSLY LIABLE. THESE PAYMEN TS 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 SU M SUSTAINED BY THE CIT(A), THE DISALLOWANCE SUSTAINED BY CIT(A) DESERVES TO BE DEL ETED. ADMITTEDLY THE SAMPLE VOUCHERS IN WHICH THE AO FOUND DEFECTS HAD REGISTER ED VEHICLE NUMBERS THAT WERE 7 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 HIRED BY THE ASSESSEE FOR CARRIAGE OF GOODS. THIS P ROVIDED ENOUGH INFORMATION FOR THE AO TO MAKE FURTHER ENQUIRIES. IN THE CIRCUMSTANCES UNDER WHICH THE CARRIAGE WAS HIRED BY THE ASSESEE IT IS NOT POSSIBLE TO INSIST O N 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 SUSTA INED BY CIT(A) TO THE EXTENT IT RELATES TO DISALLOWANCE OF 10% OF TOTAL EXPENDITURE OF RS.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 RS.5,17,093/- MADE BY TH E A.O. UNDER THE HEAD 'CASH DESTROYED BY FIRE'. 14. THE ASSESSEE HAD DEBITED RS. 5,17,093.09 UN DER THE HEAD 'CASH DESTROYED BY FIRE' IN THE PROFIT & LOSS ACCOUNT AND CLAIMED THE SAME AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. A FIRE BROKE OUT ON 13/02/201 0 (LATE NIGHT) AT STRAND ROAD WAREHOUSE OF THE ASSESSEE. IT IS THE PLEA OF THE A SSESSEE THAT STRAND ROAD WAREHOUSE HAD A SMALL OFFICE WHEREIN CASH USED TO BE GIVEN BY CUSTOMERS. IT WAS THE PLEA OF THE ASSESSEE THAT TWO OF ITS CUSTOMERS HAD GIVEN CASH O F RS. 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 DESTROYE D. 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 O F THE PREVIOUS YEAR. ACCORDING TO THE AO THERE WAS NO DOCUMENTARY EVIDENCE PRODUCED I N SUPPORT OF CASH DESTRUCTION. THE AO ALSO FOUND FROM THE COPY OF THE LETTER ADDRE SSED BY THE ASSESSEE TO THE DIRECTORATE OF FIRE SERVICE ON 16.02.2010 THAT THER E WAS NO MENTION ABOUT DESTRUCTION OF CASH ON THAT DATE. ACCORDING TO THE AO, THEREFOR E, A SUM OF RS. 5,17,093/- WAS LIABLE TO BE DISALLOWED. 8 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 15. THE AO ISSUED A SHOW CAUSE NOTICE AND CALLED U PON THE ASSESSEE TO EXPLAIN HOW LOSS DUE TO ALLEGED DESTRUCTION OF CASH WAS ALLOWAB LE AS DEDUCTION. THE ASSESSEE SUBMITTED THAT IN THE LETTER DATED 16.02.2010 ADDRE SSED BY THE ASSESSEE TO THE DIRECTORATE OF FIRE SERVICE, THERE IS REFERENCE TO LOSS OF STOCK AND MARKET CREDIT BILLS AMOUNTING TO ABOUT RS. 5 CRORES BUT NO REFERENCE AB OUT THE CASH LOSS DUE TO THE SIMPLE REASON THAT ONLY THE STOCK WAS INSURED WITH THE NAT IONAL 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 THE AO THAT IT HAD IN SUPPORT OF THE CLAIM FOR LOSS OF CASH ON ACCOUNT OF FIRE, ALL THE RELEVANT PAGES OF CASH BOOK AND THAT ENTRY IN CASH BOOK DT. 15.2.10 WHEREIN THE ENT RY REFLECTS THAT THE ASSESSEE COLLECTED CASH AGAINST DUES FROM CUSTOMER, AS DETAI LED BELOW: CUSTOMER OF AMOUNT (RS) I) RECKITT BENCKISER PRODUCT 1,72,413.00 II) GLAXO SMITHLINE PRODUCT 3,44,662.00 5,17,093.00 THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE AO T HAT IT HAD FILED A WRIT PETITION IN THE HIGH COURT OF CALCUTTA ON 27.07.2010 PRAYING FO R DIRECTION TO THE LANDLORD AND THE POLICE AND FIRE DEPARTMENT TO PERMIT THE ASSESSEE A ND OR THEIR AGENTS, AUTHORISED MEN ENTRY INTO THE TENANTED WAREHOUSE PREMISES. THE ASS ESSEE HIGHLIGHTED THE FACT THAT IN THE SAID WRIT PETITION, IT WAS CLEARLY MENTIONED TH AT THREE COMPANIES OF THE GROUP VIZ., APARNA AGENCY LTD., APARNA DISTRIBUTORS (P) LTD. AN D SALES & SERVICES WERE TRANSACTING BUSINESS FROM THE SAID PREMISES AND THE RE WAS LOSS OF STOCKS AND MARKET CREDIT BILL WAS TO THE TUNE OF RS. 5 CRORES AND CAS H RECEIVED FROM MARKET SALES AND CREDIT COLLECTIONS TO THE TUNE OF RS. 16 LAKHS OF T HE THREE COMPANIES. THOUGH THE PETITIONER BEFORE THE HONBLE COURT WAS THE ASSESSE E, TWO OF THE ASSESSEES GROUP COMPANIES WERE ALSO TENANT IN RESPECT OF DIFFERENT PORTIONS OF THE SAME PREMISES AND IN ORDER TO AVOID MULTIPLE PROCEEDINGS A SINGLE WRI T PETITION WAS FILED WHEREIN THE FIGURES PERTAINING TO THE THREE COMPANIES OF THE GR OUP WERE PROVIDED. THE ASSESSEE POINTED OUT THAT LOSS ON ACCOUNT OF CASH WAS DULY R EFLECTED IN THE FINAL ACCOUNTS OF ALL THE THREE COMPANIES, WHICH TOTALS UPTO RS. 16 LAKHS . WITH REGARD TO ENTRY RELATING TO 9 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 THE LOSS OF CASH BEING MADE ONLY 31/03/2010 WHEN F IRE BROKE OUT ON 13.02.2010, IT WAS SUBMITTED THAT THE ASSESSEE WAS MAKING ENDEAVOU R 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 W RIT PETITION IN JULY, 2010 I.E., AFTER THE CLOSE OF THE ACCOUNTING YEAR. HOWEVER, AT THE END O F THE YEAR I.E., ON 31.03.2010, THE ASSESSEE WAS REASONABLY SURE OF THE LOSS CONSIDERI NG THE EXTENT OF DAMAGE AND HENCE THE ENTRIES IN THE BOOKS OF ACCOUNTS WERE MADE ON T HE LAST DATE OF THE PREVIOUS YEAR. IT WAS ARGUED THAT AS PER THE PRINCIPLES OF MERCANTILE SYSTEM OF ACCOUNTING, WHICH THE ASSESSEE WAS FOLLOWING, THE LOSS / LIABILITY WHICH CAN BE ASCERTAINED WITH REASONABLE CERTAINTY SHOULD BE PROVIDED FOR IN THE ACCOUNTS AS AT THE END OF THE RELEVANT FINANCIAL YEAR AND THE ASSESSEES CLAIM WAS WELL WITHIN THE M ERCANTILE SYSTEM OF ACCOUNTING. 16. THE AO HOWEVER HELD THAT ASSESSEE FILED SOME D OCUMENTARY EVIDENCE WITH REGARD TO ITS CLAIM FOR DEDUCTION ON ACCOUNT OF DESTRUCTIO N 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 CA SH BOOK ONLY ON 31.03.2010 WAS ALSO NOT KNOWN. THE AO THEREFORE HELD THAT THE CLAI M OF THE ASSESSEE FOR DEDUCTION OF THE SUM IN QUESTION WAS AS AFTERTHOUGHT ONLY AND NO T ACCEPTABLE. THEREFORE, A SUM OF RS. 5,17,093/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 17. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF AO OBSERVING AS FOLLOWS :- I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT ALONG WITH THE SUPPORTING EVIDENCES FURNISHED, PERUSED THE FACTS OF THE CASE INCLUDING THE OBSERVATION /FINDING OF THE AO IN THE ASSESSMENT ORDER AND THE OTHER MATERI ALS BROUGHT ON RECORD. I DO NOT FIND ANY MERIT IN THE ARGUMENT PUT FORTH BY THE APPELLAN T. IT IS NOTED THAT IN THE DOCUMENTARY EVIDENCES FILED BY THE APPELLANT, NO WHERE IT WAS M ENTIONED THAT CASH WAS DESTROYED BY FIRE IN THE CASE OF THE APPELLANT. I ALSO FIND FORC E 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 PO SITION OF CASH. FURTHER, IT IS NOT THE CASE OF THE APPELLANT THAT A SEPARATE CASH BOOK WAS MAIN TAINED IN RESPECT OF THE SAID PREMISES. THEREFORE, IT IS SEEN THAT THE APPELLANT HAS FAILED TO PROVE BY SUFFICIENT DOCUMENTARY EVIDENCES THE LOSS CLAIMED IN RESPECT O F FIRE. 10 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 IN THE LIGHT OF THE ABOVE DISCUSSION AND OBS ERVATION, I HOLD THAT THE ACTION OF THE A.O. IN MAKING THE DISALLOWANCE OF RS.5,17,093.09 W AS CORRECT AND THUS THE DISALLOWANCE SO MADE IS UPHELD. HENCE, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 18. AGGRIEVED BY THE ORDER 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 F ORTH BEFORE AO. THE LD. DR RELIED ON THE ORDER OF CIT(A). 19. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS CLE AR FROM THE FACTS AVAILABLE ON RECORD THAT THERE WAS A FIRE IN THE ASSESSEES WAREHOUSE A T STRAND ROAD ON 13.02.2010 LATE NIGHT. THE WAREHOUSE ALSO HAS AN OFFICE ATTACHED TO IT IN WHICH THE ASSESSEE HAD KEPT RECEIPT IN CASH FROM TWO CUSTOMERS AGAINST THE DUES . THE NAME OF THE CUSTOMERS AND THE SUM WHICH THEY HAD PAID TO THE ASSESSEE IN CASH WAS DULY FURNISHED BY THE ASSESSEE BEFORE THE AO. THE CASH BOOK WAS MAINTAINE D AT THE HEAD OFFICE WHICH IS IN A DIFFERENT PREMISES. THE ENTRY IN THE CASH BOOK RE GARDING RECEIPT OF CASH WAS MADE ONLY ON 15.02.2010. IT IS BECAUSE OF THE DELAY IN COMMUNICATION OF THE RECEIPT OF CASH BY THE GODOWN CUM OFFICE AT STRAND ROAD TO THE HEAD OFFICE OF THE ASSESEE WHICH WAS AT SHAMBU NATH PANDIT ROAD. IT IS CLEAR FROM THE CO PY OF THE WRIT PETITION FILED BEFORE THE HONBLE CALCUTTA HIGH COURT IN CONNECTION WITH THE ASSESSEES RIGHT TO ENTER THE WAREHOUSE AFTER THE INCIDENT OF FIRE THAT THE ASSES SEE HAS CLEARLY SET OUT THE FACT THAT IT HAD KEPT CASH COLLECTIONS ALSO IN THE GODOWN THAT S UFFERED FIRE ACCIDENT THOUGH THE WRIT PETITION HAD BEEN FILED BY THE ASSESSEE IN THE MONT H OF JULY, 2010. IN THE GIVEN CIRCUMSTANCES THE BEST EVIDENCE THAT THE AO COULD H AVE OBTAINED REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE FOR DESTRU CTION OF CASH IN FIRE WOULD HAVE BEEN TO MAKE ENQUIRIES FROM THE PERSONS FROM WHOM THE AS SESSEE CLAIMED TO HAVE RECEIVED CASH. ADMITTEDLY THE AO DID NOT TAKE RECOURSE TO SU CH AN ACTION BUT MERELY REJECTED THE EXPLANATION OFFERED BY THE ASSESSEE. THIS APPRO ACH OF THE AO IN OUR VIEW WAS NOT PROPER. THE ENTRY RELATING TO THE LOSS OF CASH HAVI NG BEEN MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE ONLY ON 31.03.2010, IN OUR VIEW, IS NOT A VERY VITAL 11 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11 CIRCUMSTANCE. WE ARE THEREFORE OF THE VIEW THAT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF THE ASSESSEE FOR LOSS ON ACCOUNT OF CASH DESTROYED BY FIRE OUGHT TO HAVE BEEN ALLOWED AS DEDUCTION. WE HOLD AC CORDINGLY AND DIRECT THE AO TO ALLOW DEDUCTION CLAIMED BY THE ASSESEE. GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 20. IN THE RESULT THE APPEAL BY THE ASSESSEE IS AL LOWED. O RDER PRONOUNCED IN THE COURT ON 01.03.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01.03.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. APARNA AGENCY LTD., 82A, S.N.PANDIT STREET, KOLKATA-700020. 2.I.T.O., WARD-12(3), KOLKATA.. 3. CIT(A)-XII, KOLKATA. 4. CIT-IV, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES 12 ITA NO.1010/KOL/2014-M/S. APARNA AGENCY LTD A.Y.201 0-11