M/s Arun Distributors, Kolkata V. ITO, Ward 44(4)/ Kolkata, Kolkata

ITA 2375/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1589 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Keywords: Business expenditure
• Section: 143(3); 14A

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.2375/KOL/2016 ASSESSMENT YEAR:2012-13 M/S ARUN DISTRIBUTORS 12, COSSIPORE ROAD, KOLKATA-700 002 [ AAEFA 5347 E ] / V/S . ITO, WARD-44(4), 3, GOVERNMENT PLACE, KOLKATA-001 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI RAJEEVA KUMAR, ADVOCATE /BY RESPONDENT SHRI ARINDAM BHATTACHARJEE, ADDL. CIT-DR ! /DATE OF HEARING 28-06-2017 ! /DATE OF PRONOUNCEMENT 30-08-2017 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-13, KOLKATA DATED 09.08.2016. ASSESSM ENT WAS FRAMED BY ITO WARD- 44(4), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 30.03.2015 FOR ASSESSMEN T YEAR 2012-13. SHRI RAJEEVA KUMAR LD. ADVOCATE APPEARED ON BEHALF OF ASSESSEE AND SHRI ARINDAM BHATACHARJEE, LD. DEPARTMENTAL REPRESENTATIVE REPRE SENTED ON BEHALF OF REVENUE. 2. IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BY THE ASSESSEE AND OUT OF WHICH GROUND NO.1 WAS NOT PRESSED. THEREFORE GROUND NO. 1 IS DISMISSED AS NOT PRESSED. GROUND NO. 4 IS OF GENERAL IN NATURE AND D OES NOT REQUIRE SEPARATE ADJUDICATION. REMAINING GROUNDS ARE REPRODUCED BEL OW:- 2) THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THEE CASE, THE L. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF EXPENDITURE OF RS.4,34,2 62/- UNDER SEC. 14A READ WITH RULE-8D.THE DISALLOWANCE OF EXPENDITURE IS UNJUSTIF IED AND NEED TO BE DELETED. ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 2 3) THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF THE SUNDRY BALANCE WRITT EN OFF OF RS.22,09,781/-. THE ADDITION IS UNJUSTIFIED AND NEED TO BE DELETED. 3. FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO.2 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER BY SU STAINING THE DISALLOWANCE OF 4,34,262/- UNDER THE PROVISION OF SECTION 14A R.W.S RULE-8D OF THE INCOME TAX RULES, 1962. 4. BRIEFLY STATED FACTS ARE THAT ASSESSEE IN THE PR ESENT CASE IS A PARTNERSHIP FIRM AND ENGAGED IN TRADING BUSINESS OF CEMENT, PROVIDIN G GO-DOWN ON RENT AND COMMISSION AGENT. THE AO DURING THE COURSE OF ASSES SMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS MADE INVESTMENT IN SHARES AS WELL AS I T HAS INCURRED INTEREST EXPENSE. THE ASSESSEE CLAIMED TO HAVE MADE STRATEGIC INVESTM ENT IN THE COMPANY NAMELY ARUP DISTRIBUTOR PVT. LTD. FOR 1,62,48,000/- ONLY. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS NOT EARNED ANY DIVIDEND INCOME FR OM THE INVESTMENT MADE IN THE SHARES OF AFORESAID COMPANY. HOWEVER, AO WAS OF THE VIEW THAT ASSESSEE NEEDS TO MAKE THE DISALLOWANCE OF THE EXPENDITURE UNDER THE PROVISION OF RULE-8D AND ACCORDINGLY MADE THE FOLLOWING DISALLOWANCE:- I) RULE-8D(2)(I) DIRECT EXPENSE NIL II) RULD-8D(2)(II) INTEREST EXPENSE 3,93,642 III) RULE-8D(2)(III) ADMINISTRATIVE EXPENSE 40 ,620 4,34,262 THE ABOVE EXPENDITURE WAS DISALLOWED AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT HAS EARNED INTE REST INCOME OF 9,68,900/- AS WELL AS INCURRED INTEREST COST OF 28,13,682/- ONLY. THUS, THE NET INTEREST EXPENDITUR E OF 18,44,782/- WAS CLAIMED IN THE PROFIT AND LOSS ACCO UNT. THE ASSESSEE FURTHER CLAIMED THAT NO BORROWED FUND HAS BEEN UTILIZED FOR THE PUR POSE OF INVESTMENT IN THE SHARES. THE ASSESSEE ALSO FURNISHED THE DETAILS OF THE INTE REST EXPENSES AS DETAILED UNDER:- SL.NO NATURE OF LOAN AMOUNT (RS) 1 TERM LOAN FOR ASSET 10,61,352 2 VEHICLE LOAN 1,35,112 3 WORKING INCOME 90,112 ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 3 4 WORKING INCOME ON LOAN 1,10,466 THE ASSESSEE ALSO SUBMITTED THAT NO EXPENDITURE IS WARRANTED UNDER THE PROVISION OF SEC. 14A OF THE ACT AS NO DIVIDEND INCOME WAS EARNE D DURING THE YEAR. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF ASSESSEE AND C ONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 4.9 FOR THIS, RELIANCE IS PLACED ON THE ORDER IN DC IT VS. V.K. CONSTRUCTION WORKS (P) LD. (1996) 56 ITD 0399 WHEREIN IT WAS HELD THAT THE FORFEITURE OF THE SECURITY WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THE DEDUCTION THEREOF WAS ALLOWABLE AS BUSINESS EXPENDITURE. 4.10. IN CIT VS. SUGAR DEALERS (1975) 100 ITR 0424; THE ALLAHABAD HIGH COURT, CONCURRING WITH THE ORDER OF THE BOMBAY HIGH COURT IN NARANDAS MATHURADSS & CO. VS CIT (1959) 35 ITR 461 (BOM) HELD THAT THE FORFEI TURE OF THE SECURITY DEPOSIT, FOR THE FAILURE OF THE ASSESSEE TO PERFORM THE CONTRACT, WH ICH RESULTED IN LOSS COULD BE ATTRIBUTED TO THE BUSINESS CARRIED ON BY THE ASSESS EE A AD WAS ALLOWABLE BUSINESS EXPENDITURE. IT WAS FURTHER HELD THAT THE IN ORDER THAT A LOSS MAY BE ALLOWED TO BE DEDUCTED, TWO CONDITIONS HAVE TO BE SATISFIED: (I) THAT THE LOSS OR THE LIABILITY SHOULD HAVE ACCRUED IN THE RELEVANT PREVIOUS YEAR; AND (II ) IT SHOULD BE AN ASCERTAINED LIABILITY-LIABILITY ACCRUED WHEN THE ASSESSEE WAS I NFORMED THAT HIS EARNS MONEY IS FORFEITED FOR FAILURE TO COMPLY WITH STIPULATED TER MS OF AGREEMENT. THE ASSESSEE SUFFERED LOSS AT THAT POINT TIME. 4.11. IN BOC INDIA LTD. VERSUS DCIT [ ITA NO.131/KOL/2010 ], THE KOLKATA BENCH OF ITAT HELD THAT THE BAD ADVANCE WRITTEN OFF WAS ALLO WABLE AS BUSINESS LOSS. COPY OF THE ORDER DT. 16.10.2015 IS ENCLOSED HEREWITH FOR Y OUR PERUSAL. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. LD. AR BEFORE US SUBMITTED THAT NO BORROWED FUND HAS BEEN UTILIZED BY THE ASSESSEE IN THE IMPUGNED INVESTMENT. THEREFORE, THE RE IS NO QUESTION OF MAKING THE DISALLOWANCE OF INTEREST EXPENSE UNDER RULE 8D(2)(I I) OF IT RULES. SIMILARLY, LD. AR SUBMITTED THAT AS THERE WAS NO DI VIDEND INCOME EARNED BY ASSESSEE DURING THE YEAR THAT THERE WAS NO QUESTION OF ANY D ISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSE UNDER RULE 8D(2)(III) OF THE IT RULES. HE REQUESTED THE BENCH TO DECIDE THE ISSUE ON MERIT. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE INSTANT ISSUE REL ATES TO THE DISALLOWANCE MADE BY THE AO UNDER THE PROVISION OF RULE-8D R.W.S U/S 14A OF THE ACT. THE AO HAS INVOKED THE PROVISION OF RULE-8D AND HAS MADE THE FOLLOWING DIS ALLOWANCE:- ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 4 VIDE RULE 8(D)(2)(I) DIRECT EXPENSES (DEMAT ETC) = NIL VIDE RULE 8D(2)(II)- (1844,782X 8124000) 3802671 = RS.3,93,642/- VIDE RULE 8D(2)(III) % OF AV. INVESTMENT OF RS. 81,24,000 = RS. 40,620/- RS.4,34,262/- FROM THE FOREGOING DISCUSSION, WE FIND THAT THE ASS ESSEE HAS MADE INVESTMENT IN ITS ASSOCIATED COMPANY AND THEREFORE IT CAN BE INFERRED THAT THERE WAS NO PURPOSE OF MAKING ANY DIVIDEND INCOME FROM SUCH INVESTMENT. HO WEVER, ANY INCOME IF ARISES AS DIVIDEND TO THE ASSESSEE WHICH WOULD BE PURELY INCI DENTAL ON ACCOUNT OF THE IMPUGNED INVESTMENT. 7.1 HOWEVER, LD. AR FOR THE ASSESSEE BEFORE US SUBM ITTED THAT NO BORROWED FUND WAS UTILIZED BY THE ASSESSEE IN THE IMPUGNED INVEST MENT. THEREFORE, THERE IS NO QUESTION FOR MAKING THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSE AND ALL THE BORROWED FUNDS HAVE BEEN UTILIZED EXCLUSIVELY FOR T HE PURPOSE OF ASSESSEES BUSINESS. HOWEVER, WE FIND THAT THE AO HAS NOT BROUGHT ANYTHI NG ON RECORD SUGGESTING THAT THE INVESTMENT WAS MADE BY THE ASSESSEE OUT OF ITS OWN CAPITAL AND FREE RESERVE. ON DIRECT QUESTION RAISED TO THE LD.AR FROM THE BENCH FOR THE EVIDENCE IN SUPPORT HIS CLAIM, IT WAS PLEADED TO RESTORE THIS FILE TO AO FOR FRESH AD JUDICATION AND IN ACCORDANCE WITH LAW. TO THIS POINT, LD. AR ASSURED TO PROVIDE ALL T HE NECESSARY DOCUMENTS BEFORE THE AO TO JUSTIFY THAT NO BORROWED FUND HAS BEEN UTILIZ ED IN THE IMPUGNED INVESTMENT. IN REJOINDER LD. DR AGREED TO THE SUBMISSION OF LD. AR AND RAISED NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. THEREFORE, WE ARE INCLINED TO RESTORE THE MATTER BACK TO THE FILE OF AO TO VERIFY WHETHER THE INVESTMENT WAS MADE OUT THE OWN FUND OF THE ASSESSEE AND ACCOR DINGLY, AO IS DIRECTED TO PASS A SPEAKING ORDER. SIMILARLY, WE FURTHER NOTE THAT THE ASSESSEE HAS NO T EARNED ANY DIVIDEND INCOME BY WAY OF DIVIDEND DURING THE YEAR AND THERE IS NO DIS PUTE IN THIS REGARD. IN THIS CONNECTION WE FIND THAT VARIOUS COURTS HAVE HELD TH AT NO DISALLOWANCE SHALL BE WARRANTED UNDER THE PROVISION OF RULE-8D(2)(III), I F NO DIVIDEND INCOME HAS BEEN EARNED BY THE ASSESSEE. IN THIS CONNECTION, WE RELY ON THE ORDER OF THIS CO-ORDINATE BENCH IN THE CASE OF REI AGRO LTD. VS. DCIT REPORTED IN [2013] 35 TAXMANN.COM 404/144 ITD 141 (KOL.) WHEREIN IT WAS HELD AS UNDER : THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MATTE R OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 5 UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN REL ATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTAT ION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III), WHICH IS ISS UE IN THE ASSESSEE'S APPEAL, IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR R ECOMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. RESPECTFULLY FOLLOWING THE SAME WE DELETE THE ADDIT ION MADE BY AO ON ACCOUNT OF ADMINISTRATIVE EXPENSE UNDER THE PROVISION OF RULE- 8D(2)(III) OF THE IT RULES. HENCE, THIS GROUND OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. NEXT ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 22,09,781/- ONLY ON ACCOUNT OF SUNDRY BALANCE WRITTEN OFF. 9. THE ASSESSEE IS A CLEARING & FORWARDING AGENT O F CENTURY CEMENT AS PER THE AGREEMENT BETWEEN THEM VIDE DATED 01.09.2004. THE A SSESSEE CLAIMED TO HAVE DEPOSITED A SUM OF 20 LAKH WITH CENTURY CEMENT CO., WHICH WAS SHOWN I N ITS BALANCE-SHEET AS DEPOSITED WITH PARTY. THE ASSESSEE MADE SECURITY DEPOSIT WITH CENTURY CEMENT IN THE EARLIER YEAR AND THE SAME WAS BROUGHT FORWARD TO THE YEAR UNDER CONSIDERATION. THE SECURITY DEPOSIT WAS FETCH ING THE INTEREST INCOME ON THE PRINCIPAL AMOUNT AND THEREFORE IT HAS ADDED THE INT EREST INCOME TO THE AMOUNT OF SECURITY DEPOSIT IN THE YEAR UNDER CONSIDERATION. T HE ASSESSEE SHOWED A TOTAL AMOUNT OF 22,09,781/- ( 20 LAKH + 209781 INTEREST ACCRUED) IN ITS BALANCE SHEET AS SECURITY DEPOSIT WITH CENTURY CEMENT. 9.1 HOWEVER, ASSESSEE, DURING THE YEAR CAME TO KNOW THAT THE SECURITY DEPOSIT HAS BEEN ADJUSTED BY THE PRINCIPAL I.E. CENTURY CEMENT IN THE A.Y 2007-08 AGAINST THE OUTSTANDING AMOUNT ON THE PART OF ASSESSEE. THUS, T HE ASSESSEE HAS WRITTEN OFF THE DEPOSIT MADE WITH THE CENTURY CEMENT CO. FOR 22,09,781/- IN THE YEAR UNDER CONSIDERATION. AS PER THE ASSESSEE THE ABOVE FACT W AS ASCERTAINED IN THE YEAR UNDER CONSIDERATION. THEREFORE THE LIABILITY WAS CRYSTALL IZED DURING THE YEAR AND ACCORDINGLY CLAIMED IN THE PROFIT AND LOSS ACCOUNT OF THE CURRE NT YEAR. 9.2 HOWEVER, AO OBSERVED THAT THE AMOUNT OF SECURIT Y DEPOSIT HAS ALREADY BEEN ADJUSTED BY THE ASSESSEE IN THE FINANCIAL YEAR 2007 -08. THEREFORE, THE AO WAS OF THE VIEW THAT THE SECURITY DEPOSIT CANNOT BE WRITTEN OF F DURING THE YEAR. THUS, THE AO DISALLOWED THE CLAIM OF ASSESSEE AND ADDED TO THE T OTAL INCOME OF ASSESSEE. ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 6 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT AS PER CLAUSE-29 T O 33 OF THE AGREEMENT MADE WITH CENTURY CEMENT CO. VIDE DATED 01.09.2004, IT WAS TH E DUTY OF THE ASSESSEE TO COLLECT THE OUTSTANDING AMOUNT FROM THE CUSTOMERS / PARTIES AND IMMEDIATELY FORWARD THE SAME TO THE COMPANY. THE ASSESSEE FAILED TO REALISE THE MONEY OF OUTSTANDING FROM THE 26 PARTIES FOR 22,26,413/- ONLY. THEREFORE THE AMOUNT OF SECURITY DEPOSIT WITH CENTURY CEMENT CO. WAS FORFEITED IN THE MONTH OF MA RCH, 2008. HOWEVER, THERE WAS NO COMMUNICATION FROM CENTURY CEMENT CO. TO THE ASS ESSEE FOR THE FORFEITURE OF SUCH SECURITY DEPOSIT. 10.1 IT IS ALSO IMPORTANT TO NOTE THAT CENTURY CEME NT CONFIRMED THE CREDIT BALANCE IN ITS BOOKS IN THE NAME OF ASSESSEE FOR THE SECURITY DEPOSIT OF 20 LACS VIDE LETTER DATED 19.09.2011. SUBSEQUENTLY ASSESSEE REQUESTED TO CENT URY CEMENT CO. TO PROVIDE UP-TO- DATE STATEMENT OF SECURITY DEPOSIT. ACCORDINGLY, CE NTURY CEMENT CO. VIDE LETTER DATED 16.02.2012 INFORMED THAT THE SECURITY DEPOSIT HAS A LREADY BEEN FORFEITED. THUS, ASSESSEE CAME TO KNOW THAT SECURITY DEPOSIT ALONG W ITH INTEREST HAS ALREADY BEEN ADJUSTED BY CENTURY CEMENT CO. FOR THE OUTSTANDING AMOUNT FROM IT. 10.2 SINCE ASSESSEE CAME TO KNOW FOR THE FORFEITURE OF SECURITY DEPOSIT DURING THE YEAR, THEREFORE, IT WAS WRITTEN OFF IN THE YEAR UND ER CONSIDERATION. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF ASSESSEE AND C ONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- I HAVE PERUSED THE CLAIM OF THE APPELLANT. PERUSAL OF ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT SHOWS THAT IT WAS SECU RITY DEPOSIT WITH THE PARTIES NAMELY M/S CENTURY CEMENT. IT WAS NOT SALE OR PURCH ASE WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT OR THE INCOME OF THE SAME W AS OFFERED IN THE HANDS OF THE APPELLANT. IT IS ALSO SEEN THAT THE BUSINESS OF THE APPELLANT IS NOT FINANCING BUSINESS WHERE THE CAPITAL CAN BE TREATED AS STOCK IN TRADE. NEITHER THE AFORESAID CAPITAL WAS STOCK IN TRADE. AS PER SECTION 36(2)(1)- NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOU NT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOU NT OF SUCH DEBIT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR R EPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE. APART FROM ABOVE, IT IS ALSO SEEN THAT M/S CENTURY CEMENT HAS ALREADY WRITTEN OFF THE AFORESAID SECURITY DEPOSIT BALANCE AND DEBITED THE PROFIT AND LOSS ACCOUNT WHICH WAS OUT STICKS AGAINST THOSE DEBTORS. IT IS ALSO TO POI NT OUT THAT THOSE DEBTORS WERE NOT THE APPELLANT DEBTORS. ONCE M/S CENTURY CEMENT HAS ALRE ADY WRITTEN OFF AND DEBITED ON ITS P & L ACCOUNT, IT WILL TANTAMOUNT TO DOUBLE DED UCTION. THE CASES CITED BY ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 7 APPELLANT ARE FACTUALLY DETENT AS THE APPELLANT IS ONLY COMMISSION AGENT AND HE HAS NO DIRECT TRADING WITH THE PARTY TO WHOM SECURITY DEPO SITS WAS MADE. IT WAS NOT SECURITY AGAINST GOODS, RATHER APPELLANT WAS GUARANTOR. IN O THER CASES THERE WAS DIRECT DEALING AND SECURITY WAS AGAINST TRADING. THEREFORE , THE CLAIM OF THE APPELLANT HAVE BEEN MADE TO DEPLOY DEDUCTION WHICH IS NOT QUALIFIE D FOR THE DEDUCTION AS THE SAME IS NOT PART OF ITS TRADING RATHER IT WAS CAPITAL DEPOS IT WHICH WAS NOT THE PART OF HIS COMPUTATION OF TOTAL INCOME. THEREFORE, KEEPING IN VIEW THE AFORESAID PROVISIONS THE ADDITION IS HEREBY UPHELD AND THE GROUND RAISED BY THE APPELLANT IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 11. LD.AR FOR THE ASSESSEE BEFORE US SUBMITTED THAT AS PER THE AGREEMENT BETWEEN ASSESSEE AND CENTURY CEMENT CO. IT WAS THE RESPONSI BILITY OF THE ASSESSEE TO RECOVER THE OUTSTANDING AMOUNT FROM THE PARTIES. IN THIS RE GARD THE LD. AR RELIED ON THE COPY OF AGREEMENT AND DREW OUR ATTENTION ON CLAUSE 29 TO 31 , WHICH READS AS UNDER:- 29. THE C&F AGENT WILL BE RESPONSIBLE FOR RECOVERY OF THE COMPANYS OUTSTANDING IN TIME FROM THE PARTIES TO WHOM THE CEMENT HAS BEE N SOLD. 30. THE C&F AGENT WILL BE PERSONALLY LIABLE FOR PAY MENT OF THE PRICE OF THE GOODS SUPPLIED PURSUANT TO THIS AGREEMENT. 31. THE C&F AGENT WILL BE RESPONSIBLE TO PROCURE SA LE PRICE OF CEMENT AS AND WHEN THE DEAL IS MADE. HE FURTHER SUBMITTED THAT ASSESSEE FAILED TO RECOVE R THE OUTSTANDING AMOUNT FROM THE 26 PARTIES, THE DETAILS OF WHICH IS PLACED OF PAGES 9 AND 10 VIDE PARA 4.3 IN THE APPELLATE ORDER. AS THE ASSESSEE FAILED TO RECOVER THE OUTSTANDING AMOUNT, THE CENTURY CEMENT CO. FORFEITED THE AMOUNT OF SECURITY DEPOSIT . THIS FACT WAS ASCERTAINED BY CENTURY CEMENT CO. VIDE LETTER NO. CC/SALES/VMS/80 DATED 16.02.2012. THE CONTENT OF THE SAID LETTER IS REPRODUCED BELOW:- CC/SALES/VM/80 DATED:16/02/2012 M/S ARUN DISTRIBUTORS 12, COSSIPORE ROAD KOLKATA-700 002 SUB: ADJUSTMENT OF SECURITY DEPOSIT DEAR SIRS, WE HEREBY CONFIRM THAT YOUR SECURITY DEPOSIT AMOUNT RS.20,00,000/- (RUPEES TWENTY LACS ONLY) HAD BEEN ADJUSTED DURING MARCH 2008 AGAI NST OUTSTANDING AMOUNT OF VARIOUS DEALERS OF COSSIPORE DEPOT. HOPE, IT WILL SERVE YOUR PURPOSE. THANKING YOU, YOURS FAITHFULLY FOR CENTURY CEMENT ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 8 SD/- VM SAHU VM SAHU AUTHORISED SIGNATORY LD. AR FURTHER SUBMITTED THAT THE FORFEITURE OF SEC URITY DEPOSIT WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AND THEREFORE IT SHOULD BE ALLOWED AS DEDUCTION FROM THE CURRENT YEARS PROFIT. HE REQUESTED THE BENCH TO DE CIDE THE ISSUE ON MERIT. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE INST ANT CASE RELATES TO THE DEDUCTION OF THE FORFEITED AMOUNT BY CENTURY CEMENT CO. THE ASSE SSEE HAS MADE SECURITY DEPOSIT WITH CENTURY CEMENT CO. FOR 20 LAKH WHICH WAS FORFEITED BY CENTURY CEMENT CO. DUE TO NON RECOVERY OF OUTSTANDING AMOUNT BY THE AS SESSEE. 12.1 FROM THE FOREGOING DISCUSSION, WE FIND THAT TH E AMOUNT OF SECURITY DEPOSIT MADE BY THE ASSESSEE WITH CENTURY CEMENT CO. IS INT RINSICALLY LINKED WITH THE BUSINESS OF ASSESSEE. THEREFORE THE LOSS ON ACCOUNT OF FORFEITURE OF SECURITY DEPOSIT IS ADMISSIBLE BEING BUSINESS LOSS WHILE WORKING OUT TH E PROFIT OF THE COMPANY. IN THIS CONNECTION, WE FIND SUPPORT AND GUIDANCE FROM THE J UDGMENT OF VARIOUS COURTS AS DETAILED UNDER:- I) DCIT VS. AMAN SETHI (2012) 32 CCH 164 DELHI TRI BUNAL II) PYOGINAM VS. ACIT (2010) 130 TTJ 007 (UO) III) CIT VS. TARUN COMMERCIAL MILLS CO. LTD. (1977 ) 107 ITR 172 (GUJ) IV) CIT VS. SURYA PRABHA MILLS (P) LTD. (1980) 123 ITR 654 (MAD) V) THACKERS H.P. & CO. VS. CIT (1982) 134 ITR 21 ( MP) VI) NARANDAS MATHURADAS & CO. VS. CIT (1959) 35 IT R 461 (BOM) IT WAS ALSO OBSERVED THAT CENTURY CEMENT CO. HAS MA DE ENTRY IN ITS BOOKS OF ACCOUNT ON ACCOUNT OF SECURITY DEPOSIT IN THE FINANCIAL YEA R 2007-08 AS EVIDENT FROM THE LEDGER AS REPRODUCED BELOW:- CENTURY CE MENT: KOLKATA KOLKATA A/C SDRORC ------------------------------------------------- ------------------------------------------------ MEMO NO: ADJ/700021 DATE: 10/03/2008 ----------------------------------------- --------------------------------------------------- --------- S.NO. PARTY CODE AND PARTDY NAME DEBIT AMT. CREDIT AMT. ------------------------------------------ --------------------------------------------------- --------- ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 9 1.CA039 ASHITA ENTERPRISE 36009.00 2. CJ006 JOY GURU TRADERS III 501576.00 3. CL006 LOKENATH NIRMAN & SONS 360091.00 4. CM006 M. SINGH & SONS 132460.00 5. CM046 MA MANASHA ENTERPRISE 43317.00 6. CH016 NEW DUTTA CONSTRUCTION 95784.00 7. C9063 S.S.CONSTRUCTIO 861019.00 8. RS001 SOMIA TRADING CORPN. 3383.00 9. RT003 T.GHOSH CONST.& SUPPLY AGENCY 99334.00 10. ZA002 ARUN DISTRIBUTORS 2132973.00 00/00 -------- --------------------------------------------------- ---------------------- T OTAL 2132973.00 2132973.00 -------- --------------------------------------------------- ---------------------- HOWEVER, ASSESSEE WAS COMMUNICATED THE ABOVE FACT B Y CENTURY CEMENT CO. VIDE LETTER DATED 16.02.2012 AS DISCUSSED ABOVE. THEREFO RE, SAME WAS WRITTEN OFF BY ASSESSEE IN THE YEAR UNDER CONSIDERATION. 12.2 AFTER CONSIDERING THE FACTS IN TOTALITY, WE FI ND THAT ASSESSEE CAME TO KNOW ABOUT SUCH FORFEITURE OF SECURITY DEPOSIT ALONG WITH INTE REST IN THE YEAR UNDER CONSIDERATION. THEREFORE, THE ACTION OF ASSESSEE FOR WRITING OFF S ECURITY DEPOSIT DURING THE YEAR IS CORRECT. HOWEVER, ON PERUSAL OF ASSESSMENT ORDER WE FIND THAT AO HAS MADE THE DISALLOWANCE OF THE SECURITY DEPOSIT BY OBSERVING A S UNDER:- . .. HENCE, IT IS CRYSTAL CLEAR THAT RS.20,00,000/-ASSES SEE SECURITY DEPOSIT (ASSETS) AND INTEREST ACCRUED OF RS.2,09,781/- UPTO THE YEAR 2008-09 THE YEAR WAS ADJUSTED AGAINST SUNDRY CREDITOR (M/S CENTURY CEMENT) FOR TH E YEAR 2007-08. HENCE, FURTHER THE CLAIM OF RS.22,09,781/- AS SUNDRY BALANCE WRITT EN OFF BY DEBITING THE PROFIT & LOSS A/.C UNDER THE HEAD SUNDRY BALANCES WRITTEN OF F IS UNCALLED FOR AND DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE AO IN HIS ORDER HAS ALLEGED THAT ASSESSEE HAS A LREADY CLAIMED THE DEDUCTION ON ACCOUNT OF SECURITY DEPOSITS IN THE FINANCIAL YEAR 2007-08. THEREFORE CAME CANNOT BE ALLOWED AS DEDUCTION IN THE YEAR UNDER CONSIDERATIO N OTHERWISE IT WILL AMOUNT TO DOUBLE DEDUCTION TO THE ASSESSEE. FROM THE ABOVE OBSERVATION, WE FIND THAT AO HAS NOT DISPUTED ON THE CLAIM MADE BY ASSESSEE. BUT THE AO APPREHENDED WITH THE DOUBLE DE DUCTION OF SECURITY DEPOSIT TO THE ASSESSEE. ON SPECIFIC QUESTION RAISED TO LD. AR FRO M THE BENCH FOR SUCH DOUBLE DEDUCTION OF SECURITY DEPOSIT, HE OUT RIGHTLY DENIE D AND SUBMITTED THAT NO DEDUCTION ON ACCOUNT OF SECURITY DEPOSIT WRITTEN OFF WAS CLAIMED BY ASSESSEE DURING THE FINANCIAL YEAR 2007-08. THEREFORE, THERE IS NO QUESTION FOR T HE DOUBLE DEDUCTION OF SECURITY DEPOSIT AMOUNT. HOWEVER, LD. AR FAILED TO BRING ANY FINANCIAL STATEMENT PERTAINING TO FINANCIAL YEAR 2007-08 TO SUPPORT ITS CLAIM THAT NO DEDUCTION WAS CLAIMED FOR ITA NO.2375/KOL/2016 A.Y. 2012-13 M/S ARUN DISTRIBUTORS VS. ITO WD-44(4) KOL . PAGE 10 FORFEITURE OF SECURITY DEPOSIT IN THAT YEAR. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE I.E., FINANCIAL STATEMENT FOR THE FINANCIAL YEAR 20 07-08 WE ARE INCLINED TO RESTORE THIS ISSUE BACK TO THE FILE OF AO FOR FRESH VERIFICATION FOR THE LIMITED PURPOSE OF VERIFYING WHETHER THE CLAIM WAS MADE BY ASSESSEE IN THE FINAN CIAL YEAR 2007-08 ON ACCOUNT OF FORFEITURE OF SECURITY DEPOSIT. IF YES, THEN THE DE DUCTION IN THE YEAR UNDER CONSIDERATION FOR THE FORFEITURE OF SECURITY DEPOSIT WILL NOT BE GRANTED TO THE ASSESSEE AND VICE VERSA. THE AO WILL ADJUDICATE THE ISSUE IN ACCORDANCE WITH THE PROVISION OF LAW. TO THIS POINT, LD. DR RAISED NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF AO. ASSESSEE IS DIRECTED TO APPEAR AND CO-OPERATE BEFORE THE AO. HENCE, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 30/08/2017 SD/- SD/- (%&') (!&') (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP-SR.PS )&*+ - 30/08/2017 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S ARUN DISTRIBUTORS, 12, COSSIPORE ROA D, KOLKATA-002 2. /RESPONDENT-ITO WARD-44(4), 3, GOVT. PLACE, KOLKATA -001 3. **, - / CONCERNED CIT 4. - - / CIT (A) 5. ./0 %%, , , / DR, ITAT, KOLKATA 6. 012 / GUARD FILE. BY ORD ER/ & , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO , ,