S. KUSHALCHAND & CO., MUMBAI V. CIT 21, MUMBAI

ITA 3724/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3474 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 26-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAHI S KUMAR
• Assessee Lawyers: V G GINDE
• Keywords: Business income; Business expenditure
• Section: 37(1); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI PAWAN SINGH, J M ./ I.T.A. NO. 3724/MUM/2014 ( / ASSESSMENT YEAR: 2009 - 10 ) S. KUSHALC HAND & CO. B - 1 & 2, JAY CHAMBERS, SERVICE ROAD, OPP. W. E. HIGHWAY, VILE PARLE (E), MUMBAI - 400 057 / VS. CIT - 21, C - 11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051 ./ ./ PAN/GIR NO. AABFS 2433 G ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI V. G. GINDE / RESPONDENT BY : SHRI SAHI S. KUMAR / DATE OF HEARING : 01.6.2016 / DATE OF PRONOUNCEMENT : 26 . 8 .2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE COM MISSIONER OF INCOME TAX - 11 , MUMBAI (CIT FOR SHORT) DATED 2 6.3.2014 , SETTING ASIDE HER ASSESSMENT FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 28.12.2011 . 2. 1 THE CONTROVERSY THAT OBTAINS IN THE INSTANT CASE IS WITH REGARD TO THE DEDUCTIBILITY OF THE SUM OF RS.12,08,534/ - IN ARRIVING AT THE COMPUTATION OF THE ASSESSEES BUSINESS INCOME FOR THE YEAR; THE RELEVANT PART OF THE LD. CITS ORDER READING AS UNDER: 2 ITA NO. 3724/MUM/2014 (A.Y. 2009 - 10) S. KUSHALCHAND & CO. VS. CIT 13. HOWEVER, INTEREST RECEIVED ON FDR AMOUNTING TO RS.1,16,552/ - AND INCOME TAX REFUND OF RS.2,06,940/ - DO NOT FORM PART OF BUSINESS INCOME AND ARE NOT DIRECTLY LINKED TO THE BUSINESS OF THE ASSESSEE. THEY ARE IN THE NATURE OF INCOME FROM OTHER SOURCES AND SHOULD HAVE BEEN TREATED AS SUCH. IT IS ALSO OBSERVED THAT AN AMOUNT OF RS.12,08,534/ - PERTAINING TO THE INSURANCE CLAIM RECOVERED FROM JOINT VE NTURE PARTNER M/S. ESSEN CORPORATION HAS BEEN SUBTRACTED TWICE FROM THE INSURANCE CLAIM. NO EXPLANATION HAS BEEN PROVIDED BY THE ASSESSEE REGARDING THE SAME. HENCE, THE ASSESSING OFFICER IS DIRECTED TO VERIFY WHETHER THIS AMOUNT PERTAINS TO THE INSURANCE C LAIM/BUSINESS INCOME. FURTHER, THESE INCOMES SHOULD HAVE BEEN EXCLUDED AS PER EXPLANATION 3 OF SECTION 40(B) OF THE ACT WHILE COMPUTING THE ALLOWABLE REMUNERATION TO PARTNERS AS PER SECTION 40(B)(II) AND (III) OF THE AC T. 2.2 EXAMINING THE NATURE OF THE INSURANCE CLAIM FOR RS.399.69 LACS, RECEIVED AT RS.31 3.99 LACS PRIMARILY ON ACCOUNT OF UNDER - INSURANCE (RS.72.10 LACS , AND THE SALVAGE VALUE OF THE STOCK DESTROYED - RS .13.60 LACS) AND OFFERED AS BUSINESS INCOME (THROUGH CREDIT TO THE P ROFIT AND L OSS A C COUNT), T HE LD. CIT FOUND THE ASSESSEES CLAIMS WITH REGARD THERETO AS VALID ; THE CLAIM ARISING ON ACCOUNT OF LOSS OF STOCK - IN - TRADE IN FIRE AT THE ASSESSEES PREMISES. HE, HOWEVER, ENTERTAINED DOUBT WITH REGARD TO THE TREATMENT OF RS.12.09 LACS IN ARRIVIN G AT THE NET LOSS, WHICH HAD BEEN EXPLAINED BY THE ASSESSEE IN THE REVISION PROCEED INGS VIDE LETTER DATED 04.12.2013 , AS UNDER ( PB PG. 5 ) : WE SUBMIT THAT FACTUALLY OTHER INCOME IS IN NATURE OF BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES AS UNDERST OOD BY YOUR OFFICE. THE FACT IS JUSTIFIED BY UNDERSTANDING NATURE OF RECEIPTS AS EXPLAINED BELOW: (AMT. IN RS.) I) INSURANCE CLAIM LODGED WITH INS. CO. 3,99,68,926 LESS: SALVAGE ADJUSTED WITH INS. CLAIM 13,59,671 ___________ 3,86,0 9,255 LESS: UNDER INSURANCE CLAIM DISALLOWED BY INSURANCE CO. 72,09,920 LESS: INSURANCE CLAIM RECOVERED FROM JOINT VENTURE PARTNER M/S. ESSEN CORPORATION 12,08,534 __________ 60,01,386 __________ 3 ITA NO. 3724/MUM/2014 (A.Y. 2009 - 10) S. KUSHALCHAND & CO. VS. CIT INSURANCE CLAIM RECD ON LOSS OF STOCK - IN - TRADE 3,26, 07,869 II) REFUND OF 4% SAD IMPORT DUTY 1,63,172 III) TECHNICAL CONSULTATION CHARGES 8,65,511 IV) COMMISSION RECD. 8,87,219 V) INTEREST ON FDR 1,16,552 __________ 3,46,40,323 LESS: INSURANCE CLAIM RECOVERED FROM JOINT VENTURE PARTNER 12,08,5 34 __________ 3,34,31,789 ADD: INCOME TAX REFUND SHOWN IN P & L A/C 2,06,940 __________ AMOUNT AS PER I. T. NOTICE 3,36,38,729 2.3 WHAT, THEREFORE, IS REQUIRED TO BE SEEN IS IF THE ENTIRE AMOUNT RECEIVED / RECEIVABLE, I.E., RS.326.08 LACS, STAN DS CREDITED TO THE ASSESSEES OPERATING STATEMENT FOR THE RELEVANT YEAR, AND WHICH WE F IND AS SO, EACH OF THE CONSTITUENT FIGURES BEING SEPARATELY DISCLOSED UNDER SCHEDULE G [ C OST OF G OODS S OLD ] OF THE BALANCE - SHEET AS ON 31.3.2009 (PB PGS. 21 - 31 AT PG. 28): ( AMOUNT IN RS. ) SCHEDULE G: COST OF GOODS SOLD AS ON 31/3/2009 1. NET PURCHASES (1) 51,13,23,860 2. ADD: (A) DUTIES & TAXES, PAID OR PAYABLE, IN RESPECT OF GOODS AND SERVICES PURCHASED A. VAT XXXX (A) 16,94,180 TOTAL GROSS PURHCASES [1 + (A)] 51,30,18,040 (B) OTHER DIRECT EXPENSES A. FREIGHT INWARDS 40,300 B. SALVAGE STOCK 13,59,671 C. LOSS BY FIRE 60,01,386 D. EXCHANGE RATE DIFFERENCE 11,54,534 4 ITA NO. 3724/MUM/2014 (A.Y. 2009 - 10) S. KUSHALCHAND & CO. VS. CIT E. INSURANCE CLAIM RECEIVED (3,99,68,926) (3,14,13,035) (C) INCREASE OR DECREASE IN STOCK 1 OPENING STOCK XXXX 2 LESS: CLOSING STOCK XXXX (C) (2,26,04,032) TOTAL OF COST OF GOODS SOLD (1+A+B+C) 45,90,00,972 (FIGURES IN BRACKETS, REPR ESENT NEGATIVE FIGURES) THE COST OF GOODS SOLD (COGS) INCLUDES THE COST OF THE BOUGHT OUT GOODS AS WELL AS THE OTHER INPUT COST S , AND CREDIT ED WITH THE ENTIRE AMOUNT OF INSURANCE CLAIM LODGED. IN - AS - MUCH AS THIS VALUE (RS.399.69 LACS) INCLUDES THE AMOUNT O F UNDER - INSURANCE (RS.72.10 LACS) AND SALVAGE VALUE OF THE GOODS (RS. 13.59 LACS), SO THAT THE SAME STANDS CONSIDERED BY THE INSURER, THE SAME HAVE BEEN SEPARATELY DEBITED TO THE COGS. THE AMOUNT FALLING TO THE SHARE OF THE ASSESSEES JOINT VENTURE PARTNER , M/S. ESSEN CORPORATION (RS.12.09 LACS) STANDS REDUCED, AND THERE IS NO DOUBLE DEDUCTION CLAIM ON THAT ACCOUNT. TO STATE SUCCINCTLY, THE TOTAL LOSS ARISING AND CLAIMED MAY BE STATED AS FOLLOWS, AND WHICH COST AGREES WITH THE ASSESSEES ACCOUNTS: (AMT. IN RS.) A) CREDIT TO THE COST OF GOODS SOLD ACCOUNT 326.08 LACS B) STOCK (SALVAGE) 13.60 LACS C) LOSS INCURRED (NET) 60.01 LACS 399.69 LACS THE LD. CIT HAS ALSO REQUIRED THE A.O. TO EXAMINE IF THE AMOUNT OF RS.12.08 LACS PERTAINS TO THE I NSURANCE CLAIM. THIS FACT IS APPARENT IN - AS - MUCH AS THE ASSESSEE HAS REDUCED THE LOSS O N FIRE, WHICH WOULD OTHERWISE BE AT RS.72.09 LACS, I.E., TO THE EXTENT OF THE CLAIM SHORT RECEIVED. NO ADJUSTMENT ON THIS COUNT IS THEREFORE CALLED FOR. 2.4 THE DIRECTION BY THE LD. CIT WITH REGARD TO THE EXCLUSION OF IN COMES BY WAY OF INTEREST, I.E., ON FDRS AND INCOME TAX REFUND, BEING ASSESSABLE U/S. 56, FOR THE PURPOSE OF COMPUTING DEDUCTION IN RESPECT OF REMUNERATION TO PARTNERS U/. 37(1) R/W S. 40(B), 5 ITA NO. 3724/MUM/2014 (A.Y. 2009 - 10) S. KUSHALCHAND & CO. VS. CIT NEEDS NO MODIFICATION OR INTERFERENCE, BEING IN CONSONANCE WITH T HE LAW. HOW, ONE MAY ASK, COULD DEDUCTION OF BUSINESS EXPENDITURE BE ALLOWED AGAINST INCOME ASSESSABLE U/S. 56? IN FACT, NO ARGUMENTS WERE ADDRESSED IN THE MATTER DURING HEARING. 2.5 WE DECIDE ACCORDINGLY. 3. IN THE RESULT, THE ASSESSEES APPEAL IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 26 , 201 6 SD/ - SD/ - ( PAWAN SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 26 . 0 8 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI