DCIT, CIR-7(2), KOLKATA, Kolkata V. M/s Ripley & Company Ltd., Kolkata

ITA 461/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1652 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: SARNATH GHOSH
• Keywords: Business income; Business expenditure
• Section: 143(3); 37(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 461/KOL/201 5 ASSESSMENT YEAR : 2011-1 2 D.C.I.T., CIRCLE-7(2), -VS.- M/S. RIPLEY & COMPANY LIMITED KOLKATA KOLKATA [PAN : AABCR 4633 A] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SAURA BH KUMAR, ADDL. CIT(DR) FOR THE RESPONDENT : SHRI SARNATH GHOSH, ADVOCATE DATE OF HEARING : 21.08.2017. DATE OF PRONOUNCEMENT : 25.08.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 04.02.2015 OF C.I.T(A)- 3, KOLKATA RELATING TO A.Y.2011-12. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS :- 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LEARNED CIT{A) WAS JUSTIFIED IN LAW IN HOLDING THAT THE APPEAL OF THE ASSESSEE WAS ALLOWABLE BASED ON DELETIONS OF SIMILAR ADDITIONS IN AY 2005-06,200 6-07,2008-09,2009-10 & 2010- 11, IGNORING THE FACT THAT THE ASSESSEE FAILED TO F URNISH COGENT EVIDENCE IN SUPPORT OF ITS CLAIM BEFORE THE AO ? 2) WHETHER THE LD. CIT(A) HAS NOT VIOLATED THE PROV ISIONS OF RULE 46A BY ACCEPTING THE EVIDENCES RELATING TO REDUCTION OF THE AMOUNTS OF PENALTY FROM THE PAYMENTS MADE TO THE ASSESSEE WHICH WERE NEVER PRODUCED BEFO RE THE LD. A.O.? 3) WHETHER THE LD. CIT(A) WAS JUSTIFIED IN LAW IN A LLOWING THE APPEAL OF THE ASSESSEE BY APPLYING THE PRINCIPLES OF RES-JUDICATA WITHOUT LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE ? 4) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY OR ABROGATE ANY GROUND OF APPEAL AT THE TIME OF HEARING. 2 ITA NO.461/KOL/2015 M/S. RIPLEY & COMPANY LIMITED A.YR.2011-12 2 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUS INESS OF ACTING AS TRANSPORT CONTRACTOR AND EXPORT OF IRON ORE. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (ACT) FOR A.Y.2011-12 THE AO NOTICED THAT THE ASSESSEE, WHILE COMPUTING ITS INCOME UNDER THE HEAD INCOME F ROM BUSINESS HAD CLAIMED AS DEDUCTION A SUM OF RS.1,48,29,729/- AS PAYMENTS TOW ARDS DEMURRAGE AND PENALTY CHARGES. THE BREAK-UP OF THE AFORESAID SUM OF RS.1, 48,29,729/- IS RS.85,62,850/- RECOVERED BY STEEL AUTHORITY OF INDIA AND RS.58,52, 579/- RECOVERED FROM THE ASSESSEE BY CENTRAL COALFIELDS LTD AND A SUM OF RS.4,14,30 0/- RECOVERED BY ORISSA STEVEDORS LTD. ACCORDING TO THE AO THE AFORESAID SUM CANNOT B E ALLOWED AS DEDUCTION FOR THE REASON, THAT :- (I)THE ASSESSEE DID NOT PROVE THE GENUINENESS OF I NCURRING THE ABOVE EXPENSES BY PRODUCING EVIDENCE. (II) EVEN ASSUMING THE EXPENDITURE QUESTION WAS GEN UINE AND WAS INCURRED BY THE ASSESSEE, THE SAME CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF EXPLANATION-1 TO SECTION 37(1) OF THE ACT WHICH LAYS DOWN THAT EXPEN SES THAT ARE TAINTED WITH ILLEGALITY DOES NOT QUALIFY FOR DEDUCTION IN COMPUT ATION OF BUSINESS INCOME. ACCORDING TO THE AO THE EXPENDITURE WAS INCURRED FO R INFRACTION OF LAW OR OTHERWISE. THE ASSESSEE DID NOT CLARIFY THE NATURE OF INFRACTION OF LAW FOR WHICH THE EXPENDITURE IN QUESTION WAS INCURRED. ACCORDING TO THE AO, IN ABSENCE OF ANY PROPER EXPLANATION SUPPORTED BY EVIDENCE, IT CAN BE SAFELY BE CONCLUDED THAT THE ABOVE EXPENDITURES WERE INCURRED FOR VIOLATION OF L AW AND SAME CANNOT BE ALLOWED AS A DEDUCTION. 4. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT THE ALLEGATIONS OF THE AO THAT GENUINENESS OF THE EXPENDITURE WAS NOT ESTABLISHED BY THE ASSESSEE BY FILING THE REQUIRED EVIDENCE IS NOT CORRECT. IN THIS REGARD, T HE ASSESSEE POINTED OUT THAT THE ASSESSEE EXECUTED THE WORK FOR THREE PARTIES REFERR ED TO IN THE ORDER OF AO AND RECOVERIES OF DEMURRAGE PAYABLE BY THE ASSESSEE WER E ADJUSTED BY THOSE PARTIES AGAINST THE PAYMENTS DUE TO THE ASSESSEE BY THEM FOR SERVIC ES PROVIDED BY THE ASSESSEE TO THEM. THE ASSESSEE PRODUCED EVIDENCE OF PAYMENTS M ADE BY THE AFORESAID PARTIES AFTER DEDUCTING DEMURRAGE AND PENALTY PAID BY THOSE PARTI ES ON BEHALF OF THE ASSESSEE. THE COMPLETE DETAILS IN THIS REGARD WERE PRODUCED AND I T WAS NOT CORRECT ON THE PART OF THE 3 ITA NO.461/KOL/2015 M/S. RIPLEY & COMPANY LIMITED A.YR.2011-12 3 AO TO SAY THAT THE GENUINENESS OF THE EXPENSES WAS NOT ESTABLISHED BY THE ASSESSEE. THE ASSESSEE ALSO POINTED OUT THAT THE PAYMENTS OF DEMU RRAGE AND PENALTY WERE PURELY COMPENSATORY IN NATURE AND CANNOT BE CONSIDERED AS PAYMENTS WHICH IS MADE FOR INFRACTION OF ANY LAW AND THEREFORE NOT HIT BY THE PROHIBITION CONTAINED IN EXPLANATION 1 TO SECTION 37(1) OF THE ACT. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS J IYAJEERAO COTTON MILLS LTD. 103 CTR 426 (CAL) WHEREIN IT WAS HELD THAT AMOUNTS PAID FOR NON DELIVERY OF GOODS IN TIME IS ALLOWABLE AS DEDUCTION EVEN THOUGH THE NOMENCLAT URE USED FOR SUCH PAYMENTS IS PENALTY IN THE CONTRACTS. THE ASSESSEE ALSO POINTED OUT THAT SIMILAR DISALLOWANCE IN ASSESSEES OWN CASE FOR A.Y.2005-06, 2006-07 , 2008 -09 AND 2010-11 WERE DELETED BY CIT(A) AND ALSO CONFIRMED BY THE TRIBUNAL FOR A.Y.2 008-09 IN ITA NO.240/KOL/2012 ORDER DATED 27.06.2014. 5. THE CIT(A) AGREED WITH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE AO. THE FOLLOWING WERE THE OBSERVATIONS OF CIT(A) :- 5. IN THE APPELLATE PROCEEDINGS IT WAS SUBMITTED , THAT THE APPELLANT WAS CONTRACTUALLY BOUND BY STEEL AUTHORITY OF INDIA LTD ., CENTRAL COALFIELD LTD. AND ORISSA STEVEDORS LTD. THE APPELLANT COULD NOT EXECU TE THEIR WORK WITHIN THE TIME ALLOTTED IN THE CONTRACTS. ON ACCOUNT OF THE SAME, THE SAID PARTIES IMPOSED DEMURRAGE / PENALTY IN ACCORDANCE WITH THE TERMS OF THE CONTRACT. THE AMOUNTS WERE RECOVERED BY THE SAID PARTIES FROM THE PAYMENT S MADE BY THEM. THOUGH THE ASSESSING OFFICER HAS STATED IN A GENERAL MANNER, T HAT EVIDENCE IN RESPECT OF THE CHARGES WAS NOT PRODUCED, THE LEVY OF DEMURRAGE CHA RGES IS VERY MUCH EVIDENT FROM THE VERY FACT OF THE CONTRACTEES DEDUCTING THE AMOUNTS FROM THE PAYMENTS MADE, DETAILS OF WHICH WERE DULY PRODUCED. THIS WAS A USUAL CHARGE IN THE APPELLANT'S LINE OF BUSINESS AND THERE WAS NO INFRI NGEMENT OF LAW. IT HAS BEEN HELD IN A NUMBER OF DECISIONS THAT SUCH PAYMENTS CANNOT BE TREATED AS PENALTY FOR ANY OFFENCE OF INFRINGEMENT OF LAW AND HAD TO BE ALLOWE D AS NORMAL BUSINESS EXPENDITURE. THE APPELLANT RELIED UPON A NUMBER OF DECISIONS, INCLUDING THAT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS JIYAJEERA O COTTON MILLS LTD. 103 CTR 426 IN WHICH IT WAS HELD, THAT THE AMOUNT PAID FOR NON-DELIVERY OF GOODS IN TIME IS ALLOWABLE AS DEDUCTION EVEN THOUGH THE SAME IS DESI GNATED AS PENALTY IN THE CONTRACTS. IT WAS ALSO INFORMED THAT THIS WAS A REC URRING ISSUE IN THE APPELLANT'S CASE 4 ITA NO.461/KOL/2015 M/S. RIPLEY & COMPANY LIMITED A.YR.2011-12 4 AND THE TRIBUNAL AND CIT(A) HAVE ALLOWED RELIEF TO THE ASSESSEE IN RESPECT OF SIMILAR ADDITIONS MADE IN EARLIER ASSESSMENT YEARS. COPIES OF CIT(A)'S ORDERS IN AY.2005- 06,2006-07, 2008-09, 2009- 10 & 2010-11 AND OF ITAT FOR AY.2008-09 WERE ALSO PRODUCED. 6. IT IS SEEN THE DISALLOWANCE OF DEMURRAGE / PENAL TY IS A RECURRING ISSUE IN THE APPELLANT'S CASE, AS SIMILAR DISALLOWANCES HAD BEEN MADE IN THE APPELLANT'S CASE IN THE EARLIER ASSESSMENT YEARS. WHILE DECIDING APPEAL FOR EARLIER YEARS SUCH AS AY.2005-06, 2006-07 UP TO THE IMMEDIATELY PRECEDING YEAR, I.E. AY. 2010-11, THE APPELLANT HAS ALL ALONG BEEN GETTING RELIEF IN FIRS T APPEAL. IN ASSESSMENT YEAR 2008- 09 ALSO, THE ISSUE CAME UP BEFORE THE CIT(A)-VIII , KOLKATA IN APPEAL NO. 125/CIT(A)-VIII/KOIL10-11. VIDE ORDER DATED 24-11-2 011, HE DELETED THE SIMILAR DISALLOWANCE, FOLLOWING APPELLATE ORDERS IN EARLIER ASSESSMENT YEARS. THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED BY HONBLE ITAT VIDE ITS ORDER DATED 27- 06-2014 IN ITA NO.240/KOL/2012. THE MATERIAL FACTS IN THE YEAR UNDER CONSIDERATION ARE ESSENTIALLY SIMILAR. THEREFORE, F OLLOWING THE REASONING GIVEN IN THE APPELLATE ORDERS OF MY LD. PREDECESSOR, AS WELL AS HONBLE TRIBUNAL IN THE APPELLANTS OWN CASE IN THE AFORESAID YEAR AND OTHE R ASSESSMENT YEARS THE DISALLOWANCE IS DELETED. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A). 8. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE ORDER OF CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. IT IS SEEN THAT THE CASE MADE OUT BY THE AO THAT THE ASSESEE HAS FAILED TO P ROVE THAT EXPENSES WERE GENUINE BY PRODUCING EVIDENCE CANNOT BE SUSTAINED. IT HAS BEEN HELD BY CIT(A) THAT LEVY OF DEMURRAGE CHARGES WAS EVIDENT FROM THE FACT THAT TH E CONTRACTEES DEDUCTED THE AMOUNTS WHILE MAKING THE PAYMENTS TO THE ASSESSEE. IT WAS A LSO AN USUAL ITEM OF EXPENDITURE IN THE ASSESSEES LINE OF BUSINESS. THIS FINDING OF CI T(A) HAVE NOT BEEN DISPUTED BY THE REVENUE BEFORE US. THE AO DID NOT THINK IT FIT TO M AKE ANY ENQUIRIES FROM THE THREE 5 ITA NO.461/KOL/2015 M/S. RIPLEY & COMPANY LIMITED A.YR.2011-12 5 PARTIES WHO ARE TO SAID TO HAVE PAID DEMURRAGE AND PUNITIVE CHARGES. WE THEREFORE DO NOT FIND ANY MERITS IN THIS GROUND OF APPEAL RAISED BY THE REVENUE. AS FAR AS THE QUESTION WHETHER THE DEMURRAGE AND PENALTY CHARGES ARE PUNIT IVE IN NATURE OR COMPENSATORY IT HAS BEEN HELD BY THE TRIBUNAL IN ASSESSEES OWN CAS E FOR A.Y.2008-09 THAT SUCH PAYMENTS ARE PURELY COMPENSATORY IN THE LIGHT OF TH E DECISION OF THE TRIBUNAL REFERRED TO THE ABOVE. WE ARE OF THE VIEW THAT THERE IS NO M ERIT IN THIS APPEAL BY THE REVENUE. CONSEQUENTLY THE SAME IS DISMISSED. 9. IN THE RESULT THE APPEAL BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT O N 25.08.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASU DEVAN ] ACCOUNTANT MEMBER JUDICI AL MEMBER DATED : 25.08.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. RIPLEY & COMPANY LIMITED, BHAGYAKUL MANSION , 1 ST FLOOR, BLOCK-C, 22, LEE ROAD, KOLKATA-700071. 2. D.C.I.T., CIRCLE-7(2), KOLKATA. 3. C.I.T.(A)- 3, KOLKATA. 4. C.I.T.- 3, KOLKATA . 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O., ITAT KOLKATA BENCHE S 6 ITA NO.461/KOL/2015 M/S. RIPLEY & COMPANY LIMITED A.YR.2011-12 6