DY. C.I.T. CENTRAL CIR.-1(3), Nagpur V. M/S SPACW WOOD FURNISHERS PVT. LTD, Nagpur

ITA 170/NAG/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1282 (ITAT-NAGPUR)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

1 ITA NO. 170/NAG/2016. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER.. I.T.A. NO. 170/NAG/2016 ASSESSMENT YEAR : 2012 - 13. DY. COMMISSIONER OF INCOME - TAX, M/S SPACE WOOD FURNISHERS PVT.LTD., CENTRAL CIRCLE - 1 ( 3 ), NAGPUR. VS. NAGPUR. PAN AA CCS4955R. APPELLANT. RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI ABHAY AGRAWAL. DATE OF HEARING : 2 2 - 11 - 2016 DATE OF PRONOUNCEMENT : 19 TH DEC., 2016 O R D E R. PER SHAMIM YAHYA , A.M. : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - 3, NAGPUR DATED 1 9 - 01 - 2016 AND PERTAINS TO ASSESSMENT YEAR 20 12 - 13. . THE GROUND OF APPEAL READ S AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.38,28,570/ - BEING DISALLOWANCE OF DEMURRAGE/DETENTION CHARGES, WHICH ARE PUNITIVE IN NATURE AND ACCEPTED BY THE ASSESSEE BEFORE CIT(A). 2. IN THIS CASE THE AO OBSERVED THAT THE ASSESSEE HA S CLAIMED RS.38,28,570/ - ON ACCOUNT OF DETENTION/DEMURRAGE CHARGES. TO THE AOS QUERY IN THIS REGARD, THE ASSESSEE RESPONDED AS UNDER : THE ASSESSEE IS ENGAGED IN MANUFACTURING OF MODULAR FURNITURE AND PRELAM BOARDS THE RAW MATERIAL IS REQUIRED TO BE IM PORTED FROM MALEYSIA, THILAND ETC. IN CONTAINERS. DURING THE YEAR THE COMPANY HAS MADE THE PAYMENT OF RS.3828570/ - TOWARDS DETENTION CHARGES TO SHIPPING 2 ITA NO. 170/NAG/2016. COMPANIES THROUGH TRANSPORT CLEARING AGENCY. THESE ARE THE CHARGES FOR DELAY IN LIFTING OF MATERIAL FR OM PORT AT MUMBAI AND IT IS PART OF INWARD TRANSPORT CHARGES. IN CASE OF IMPORT BY SHIP THE TERMS OF TRANSPORTING THE GOODS SIT IS CLEARLY STATED IN CASE OF DELY IN LIFTING OF MATERIAL FROM PORT AT MUMBAI AND IT IS PART OF INWARD TRANSPORT CHARGES IN CASE OF DELY IN LIFTING THE MATERIAL THEY WOULD BE CHARGING BY WAY OF CARGO STORAGE CHARGES CONTAINER GROUND RENT CHARGES AND PORT STORAGE CHARGES AT THE RATE SPECIFIED PER DAY OF DELAY. THUS IT CLEARLY STATED T HAT THE DETENTION CHARGES PAID ARE OF THE NATURE O F STORAGE CHARGES AND GROUND RENT AND NOT PENALTY ON VIOLATION OF ANY LAW AND SUCH EXPENSES NOT BEING PENAL IN NATURE ARE ALLOWABLE AS BUSINESS EXPENSES AS COST OF MATERIAL PUR C HASE. HOWEVER, THE AO WAS NOT SATISFIED. HE HELD THAT DETENTION/DEMURRAGE CHAR GES PAID BY THE ASSESSEE ARE PUNITIVE IN NATURE. THAT THERE IS NO COMMERCIAL EXPEDIENCY INVOLVED. HENCE HE DISALLOWED THE ENTIRE PAYMENT. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) REFERRED TO SEVERAL CASE LAWS AND DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE BY OBSERVING AS UNDER: 6. THE ASSESSEE HAS ALSO ARGUED THAT THE AO HAD GROSSLY ERRED IN OBSERVING THAT THERE IS NO COMMERCIAL EXPEDIENCY INVOLVED IN INCURRING SUCH AN EXPENDITURE. THE ASSESSEE HAS SUBMITTED THAT IT IS REQUIRED TO PAY THE CHARGES A FTER WHICH DELIVERY OF RAW MATERIAL COULD BE TAKEN FROM THE PORT. HAD THE ASSESSEE NOT PAID THE CHARGES, IT WOULD HAVE LED TO LOSS OF STOCK IN TRADE. THUS, THERE WAS GENUINE BUSINESS EXPEDIENCY. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DALMIA CEMENT (288 ITR 1) WHEREIN THE DECISION OF HONBLE DELHI HIGH COURT IN 254 ITR 377 WAS APPROVED. THE HONBLE COURT HAS HELD AS UNDER : THE TERM COMMERCIAL EXPEDIENCY IS NOT A TERM OF ACT. IT MEANS EVERYTHING SERVES TO PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF HE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESS AND NOT OF THE REVENUE. 7. THE ASSESSEE HAS ARGUED THAT IT WAS SETTLED POSITION OF LAW HAT ONCE THE EXPENDITURE HAS BEEN FOUND TO BE GENUINE, THE DEPARTMENT CANNOT JUDGE THE COMMERCIAL EXPEDIENCY OF INCUR RING SUCH AN EXPENDITURE. IT WAS A WELL SETTLED LAW THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT 3 ITA NO. 170/NAG/2016. FOR THE PURPOSE OF BUSINESS, REASONABLENESS OF EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE ASSESSEE AND NOT OF THE REVENUE. 8. THE ASSESSEE SUBMISSION ON THE ISSUE IS HELD TO BE IN ORDER AND REASONABLE . IT IS A SETTLED POSITION OF LAW IN VIEW OF THE JUDGEMENTS DISCUSSED ABOVE THAT DETENTION/ DEMURRAGE CHARGES ARE COMPENSATORY IN NATURE AND ARE VERY MUCH INCIDENTAL TO BUSINESS. IT IS NOT IN THE NATURE OF FINE OR PENALTY FOR ANY INFRINGEMENT OF LAW. THE EXPENDITURE ALSO IS NOT FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IN TERMS OF EXPLANATION 1 TO SECTION 37(1) OF THE INCOME TAX ACT. ON THE POINT OF BUSINESS EXPEDIENCY ALSO, THE ASSESSEES ARGUMENT AND RELIANCE ON THE DECISION OF HONBLE SUPREME COUR IS CONSIDERED. THE AOS ARGUMENTS AND CONCLUSION IS NOT JUSTIFIED CONSIDERING THAT THE AO HAS NO T HELD THE EXPENDITURE AS NOT GENUINE AND ONCE THE EXPENDITURE HAS BEEN FOUND TO BE GENUINE, THE DEPARTMENT CANNOT JUDGE THE COMMERCIAL EXPEDIENCY OF INCURRING OF SUCH EXPENDITURE. 9. ON FACTS AND CONSIDERING THE ASSESSEES SUBMISSION AS WELL AS JUDGEMENTS OF THE COURTS DECISION ABOVE, THE ADDITION OF RS.38,28,570/ - MADE BY THE AO IS DELETED. THE AO IS DIRECTED ACCORDINGLY. 4. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 5. LEARNED D.R. RELIED UPON THE ORDER OF THE AO. 6. PER CONTRA LEARNED COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF LEARNED CIT(APPEALS) FURTHER MORE HE PLACED RELIANCE UPON THE FOLLOWING CASE LAWS: 1. NANHOOMAL JYOTI PRASAD VS. CIT (123 ITR 269 (ALLAHABAD HC). 2. MAHALAXMI SUGAR MILLS CO. LTD. VS. CIT (19 TAXMAN 447)(DELHI HC). 3. ACIT VS. NATIONAL FERTILIZERS LTD. (ITA NO. 4076/DEL/2013) (DELHI ITAT). 4. ACIT VS. NIKO RESOURCES LTD. (123 TTJ 310 (AHMEDABAD ITAT). 5. CIT VS. DALMIA CEMENT (254 ITR 377) (DELHI HC) APPROVED BY SC IN 288 ITR 1. 4 ITA NO. 170/NAG/2016. 7. UPON CAREFUL CONSI DERATION WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY SEVERAL HIGH COURT DECISIONS AS UNDER : NANHOOMAL JYOTI PRASAD VS. CIT (123 ITR 269 (ALLAHABAD HC) WHEREIN IT HAS BEEN HELD AS UNDER : DEMURRAGE CHARGED BY PORT AUTHORITIES IS IN THE NATURE OF COMPENSATION FOR DELAY IN CLEARING THE GOODS FROM THE GODOWNS OF THE PORT AUTHORITIES. IT INCLUDES AMOUNT CHARGEABLE FOR STORAGE AND SALE CUSTODY OF THE GOODS BY THE PORT AUTHORITIES BEYOND THE FREE PERIOD ALLOWED UNDER PORT RULES. IN THE INSTANT CASE, THE DEMURRAGE PAID BY THE ASSESSEE WAS NOT A FINE PAID FOR ANY CRIMINAL ACT BUT COMPENSATION FOR USE OF THE PORT FACILITIES BEYOND H PERMISSIBLE FREE PERIOD. MAHALAXMI SUGAR MILLS CO. LTD. VS. CIT (19 TAXMAN 447)(DELHI HC) WHEREIN IT HAS BEEN HELD AS UNDER : PAYMENT OF DEMURRAGE IS NOT IN THE NATURE OF DEMAGE OR PENALTY AND IT IS MERELY A CHARGE MADE BY THE RAILWAY ADMINISTRATION TO COMPENSATE ITSELF FOR KEEPING THE GOODS OF THE ASSESSEE IN ITS CUSTODY BEYOND A PARTICULAR TIME. PAYMENT OF DEMURRAGE IS INCIDENTAL TO BUSINESS AND ITS IMPACT IS TO INCREASE THE COST TO THE ASSESSEE, OF THE GOODS TRANSPORTED. THEREFORE, THE EXPENDITURE ON THIS ACCOUNT CAN BE SAID TO BE LAID OUT WHOLLY AND EXCLUSIVELY FOR T HE ASSESSEES BUSINESS. ACCORDINGLY, THE IMPUGNED PAYMENT WAS ALLOWABLE AS BUSINESS EXPENDITURE. 8. NO CONTRARY DECISION FROM THE JURISDICTIONAL HIGH COURT HAS BEEN PRODUCED BEFORE US. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCO RDINGLY WE UPHOLD THE SAME. 9. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DEC., 2016. SD/ - SD/ - (RAM LAL NEGI) ( SHAMIM YAHYA) JUDICIAL MEMBER. ACOUNTANT MEMBER. NAGPUR, DATED: 19 TH DEC. , 2016. 5 ITA NO. 170/NAG/2016. COPY FORWARDED TO : 1. M/S SPACE WOOD FURNISHERS PVT. LTD. T - 48, MIDC, HINGNA, NAHPUT - 440016. 2. D.C.I.T., CENTRAL CIRCLE - 1 ( 3 ), NAGPUR. 3. C.I.T. - (CENTRAL), NAGPUR. 4. CIT(APPEALS) - 3, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.