M/s Parisons Milling Co. P. Ltd, Calicut V. ACIT, Calicut

ITA 22/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58206 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 02-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: A S NARAYANAMOORTHY CAAR
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NO. 22/COCH/2010 ASSESSMENT YEAR : 2006-07 M/S. PARISONS MILLING COMPANY (P) LTD., 6/1183, CHEROOTY ROAD, CALICUT. [PAN:AADCP3070B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, CALICUT. (ASSESSEE-APPELLANT) (REVENUE-RESPOND ENT) ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA-AR REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 02/01/2012 DATE OF PRONOUNCEMENT 6/01/2012 O R D E R PER B.R.BASKARAN AM: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28.10.2009 PASSED BY THE CIT(A)-I, KOCHI AND IT RELATES TO THE ASSESS MENT YEAR 2006-07. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN SUS TAINING THE ADDITION OF ` 23,19,547/- ON THE GROUND THAT THE SAID PAYMENT IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE. 2. THE FACTS RELATING TO THE SAME ARE STATED IN BRI EF. THE ASSESSEE-COMPANY WAS FORMED WITH THE BUSINESS OBJECTIVE OF MANUFACTURING WHEAT PRODUCTS. IT WAS NOTED THAT THE ASSESSEE HAS NOT COMMENCED COMMERCIAL PRODUCTIO N DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSEE INDULGED IN T HE ACTIVITY OF TRADING IN WHEAT DURING THE YEAR BY PROCURING WHEAT FROM A COMPANY NAMED M/ S. CARGILL INDIA PVT. LTD. FROM THE PERUSAL OF THE ACCOUNTS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF ` 23,19,547/- AS EXPENDITURE TOWARDS PAYMENT OF PENA L CHARGES TO ONE OF ITS SISTER I.T.A. NO.22 /COCH/2010 2 CONCERNS NAMED M/S. PARISONS ESTATE AND INDUSTRIES PVT. LTD.(PEIPL). THE FACTS RELATING TO THE SAID PAYMENT ARE NARRATED IN BRIEF. M/S. PEI PL HAD ENTERED INTO A CONTRACT WITH M/S. CARGILL INDIA PVT. LTD. TO PROCURE WHEAT. IT IS STATED THAT AS PER THE CONTRACTUAL TERMS, M/S. PEIPL IS LIABLE TO PAY PENAL CHARGES TO M/S CA RGILL INDIA PVT LTD IN ORDER TO COMPENSATE IT TOWARDS THE COST OF STORAGE AND INTER EST, IF THE CONTRACTED WHEAT WAS NOT LIFTED WITHIN THE PERMITTED TIME LIMIT. IT WAS STA TED THAT M/S. PEIPL COULD NOT LIFT CERTAIN QUANTITIES OF WHEAT AS IT HAD EXHAUSTED ITS LOC LIM ITS. HENCE M/S PEIPL REQUESTED THE ASSESSEE HEREIN TO PURCHASE CERTAIN QUANTITITES OF WHEAT FROM M/S CARGILL INDIA PVT LTD, WHICH WAS REQUIRED TO BE PURCHASED IN TERMS OF THE CONTRACT ENTERED BETWEEN M/S PEIPL AND M/S CARGILL INDIA P LTD. ACCORDINGLY, THE ASSE SSEE-COMPANY HAS PURCHASED WHEAT FROM M/S. CARGILL INDIA PVT. LTD. SINCE THERE WAS DELAY IN LIFTING THE QUANTITY OF WHEAT, IT IS STATED THAT M/S. CARGILL INDIA LTD. RAISED A DEB IT NOTE TOWARDS PENAL CHARGES UPON M/S.PEIPL AND IN TURN, M/S. PEIPL HAS RAISED THE DE BIT NOTE TO THE TUNE OF RS.23,19,547/- UPON THE ASSESSEE HEREIN, WHICH WAS PROPORTIONATE T O THE QUANTITY PURCHASED BY IT FROM M/S CARGILL INDIA PVT LTD. THE ASSESSEE HEREIN HAS ACCORDINGLY CLAIMED THE SAID AMOUNT OF ` 23,19,547/- AS EXPENDITURE. 3. THE ASSESSING OFFICER NOTICED THAT THE GOODS PUR CHASED FROM CARGILL INDIA PVT. LTD BY M/S. PEIPL WAS SOLD TO THE OTHER SISTER CONCERNS , WHICH WERE FUNCTIONING IN THE SAME ADDRESS. HE ALSO NOTICED THAT THE ASSESSEE DID N OT ENTER INTO ANY AGREEMENT WITH M/S. PEIPL IN CONNECTION WITH THE IMPUGNED PURCHASE TRAN SACTION.. ACCORDINGLY, THE AO CONCLUDED THAT THE IMPUGNED PENAL CHARGES OF ` 23.19 LAKHS WAS NOT A LIABILITY RELATABLE TO THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY, DISAL LOWED THE SAME. THE LD. CIT(A) ALSO UPHELD THE VIEW OF THE ASSESSING OFFICER. HENCE, TH E ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, AND PERUSED THE RECORD. THE LD. COUNSEL FOR THE ASSESSEE, CARRIED US TO THE VARIOUS DOCUMENTS F ILED IN THE PAPER BOOK TO DRIVE THE POINT THAT THE IMPUGNED EXPENDITURE WAS A GENUINE ONE AND WAS PROPERLY ACCOUNTED FOR BY THE ASSESSEE. HE RELIED UPON THE FOLLOWING CASE LAW TO SUBMIT THAT ANY EXPENDITURE INCURRED I.T.A. NO.22 /COCH/2010 3 WHOLLY AND EXCLUSIVELY ON THE GROUND OF COMMERCIAL EXPEDIENCY IS MAINTAINABLE UNDER THE ACT. 1. SASSON I. DAVID AND CO. PVT. LTD. VS. CIT, BOM BAY, 118 ITR 261 (SC) 2. CATALYSTS AND CHEMICALS INDIA (WEST A SIS) LIMITED VS. CIT, 166 ITR 769 (KER.). 3. CIT VS. ALUMINIUM INDUSTRIES LTD., 21 4 ITR 541 (KER.). 5. FROM THE CAREFUL READING OF THE RECORD, IN OUR V IEW, THE DISPUTE IS NOT ABOUT THE GENUINENESS OF THE EXPENDITURE, BUT WHETHER THE IMP UGNED EXPENDITURE OF RS.23.19 LAKHS PERTAINS TO THE ASSESSEE OR NOT. THERE CANNOT BE A NY DOUBT THAT ONE SHALL MAKE PAYMENT TOWARDS ANY EXPENDITURE, ONLY IF THE LIABILITY IN R ESPECT OF THE SAME IS FASTENED UPON HIM. IN THE ABSENCE OF ANY SUCH LIABILITY, SUCH PAYMENT CANNOT BE CLAIMED AS EXPENDITURE. NOW, THE DISPUTE IS WHETHER THERE EXISTED ANY BINDI NG LIABILITY UPON THE ASSESSEE IN RESPECT OF THE IMPUGNED EXPENDITURE OF RS.23.19 LAK HS. THE DEBIT NOTE IN RESPECT OF THE IMPUGNED PENAL CHARGES HAS BEEN RAISED BY M/S CARGI LL INDIA PVT LTD UPON M/S PEIPL IN VIEW OF THE CLAUSES 3.9.3 AND 3.9.4 IN THE CONTRACT ENTERED BETWEEN M/S. CARGILL INDIA PVT. LTD. AND M/S PEIPL. IN TURN, M/S PEIPL HAS PASSE D ON THE SAID DEBIT NOTE UPON THE ASSESSEE. ACCORDING TO THE ASSESSEE, IT WAS UNDER AN OBLIGATION TO HONOUR THE DEBIT NOTE SO RAISED AND HENCE THE SAME WAS CLAIMED AS EXPENDI TURE. HOWEVER, THE CLAIM OF THE DEPARTMENT IS THAT THERE IS NO CONTRACTUAL AGREEMEN T BETWEEN M/S. PEIPL AND THE ASSESSEE, WHICH WOULD COMPEL THE ASSESSEE TO MEET T HE IMPUGNED LIABILITY. 6. WE FIND MERIT IN THE CONTENTION OF THE REVENUE. THERE CANNOT BE ANY DISPUTE THAT THE TRADING TRANSACTION IS AN INDEPENDENT TRANSACTI ON. THE LIABILITY TO PAY PENAL CHARGES, IF ANY, IS GOVERNED BY THE AGREEMENT ENTERED INTO B ETWEEN TWO PARTIES. THERE IS NO DISPUTE THAT M/S PEIPL WAS HAVING A CONTRACTUAL OBL IGATION TO PAY THE PENAL CHARGES IN VIEW OF THE AGREEMENT; HOWEVER NO SUCH AGREEMENT EX ISTED BETWEEN M/S PEIPL AND THE ASSESSEE. THE TRANSACTION ENTERED INTO BETWEEN THE ASSESSEE AND M/S. PEIPL IS AN INDEPENDENT TRADING TRANSACTION AND IT WAS NOT SHOW N THAT IT WAS ATTACHED WITH ANY SUCH LIABILITY CLAUSE. AS SUBMITTED BY THE REVENUE, TH E ASSESSEE HAS FAILED TO FURNISH ANY I.T.A. NO.22 /COCH/2010 4 DOCUMENTARY EVIDENCE TO SHOW THAT IT WAS UNDER A BI NDING CONTRACTUAL OBLIGATION TO PAY THE PROPORTIONATE PENAL CHARGES IMPOSED UPON M/S. P EIPL BY M/S. CARGILL INDIA PVT. LTD. IN SUCH A SITUATION, IT IS DIFFICULT TO APPRECIATE THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD. 7. IT IS TRUE THAT EXPENDITURE IS ALLOWABLE I F THERE IS A COMMERCIAL EXPEDIENCY IN INCURRING THE SAME. HOWEVER, IN THE INSTANT CASE, THE EXPENDITURE PERTAINS TO THE PAYMENT OF PENAL CHARGES, WHICH SHOULD BE GOVERNED BY THE AGREEMENT ENTERED BETWEEN TWO PARTIES. BEFORE INCURRING SUCH KIND OF EXPENDITURE , IN OUR VIEW, IT HAS TO BE FIRST SHOWN THAT THE LIABILITY WAS FASTENED UPON THE ASSESSEE. IN THE INSTANT CASE, IT WAS NOT SHOWN BY THE ASSESSEE THAT THE IMPUGNED LIABILITY WAS FASTEN ED UPON IT. THE LD A.R SUBMITTED THAT AN IDENTICAL CLAIM MADE IN THE HANDS OF ANOTHER SIS TER CONCERN NAMED M/S PARISONS ROLLER FLOUR MILLS LTD WAS ALLOWED BY THE VERY SAME ASSESS ING OFFICER AND IN THIS REGARD, HE ALSO FURNISHED A COPY OF ASSESSMENT ORDER PASSED IN THE HANDS OF THE ABOVE SAID SISTER CONCERN. HOWEVER, WE NOTICE THAT THE SAID ASSESSMENT ORDER I S A CRYPT ORDER AND THERE IS NO DISCUSSION ABOUT THE SAID CLAIM, IN THE ABSENCE OF WHICH WE ARE UNABLE TO APPRECIATE THE ARGUMENTS OF LD A.R. IN VIEW OF THE FOREGOING DISCU SSIONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION REACHED BY THE LD. CIT(A) ON THE IM PUGNED ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ACCORDINGLY ON THIS 6TH DAY OF JANUARY, 2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN)) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 6TH JANUARY, 2012 GJ COPY TO: 1. M/S. PARISONS MILLING COMPANY (P) LTD., 6/1183, CHEROOTY ROAD, CALICUT.. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE-2,CALICUT. I.T.A. NO.22 /COCH/2010 5 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .