Jacob C.Luke, Kottarakkara V. ACIT, Kollam

ITA 504/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58317 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 08-09-2010
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: T V HARIHARAN
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 504/COCH/2010 ASSESSMENT YEAR : 2006-07 SHRI JACOB C.LUKE, PROP: NOBLE CASHEW INDUSTRIES, KOTTARAKKARA, KOLLAM [PAN: AAVPL 1038J] THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI T.V.HARIHARAN, FCA RESPONDENT BY: SMT. VIJAYAPRABHA, JR. DR DATE OF HEARING: 27/02/2012 DATE OF PRONOUNCEMENT: 29/02/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18-06-2010 PASSED BY LD CIT(A)-1, TRIVANDRUM AND IT RELATES TO THE AS SESSMENT YEAR 2006-07. THE ASSESSEE IS ASSAILING THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.4,50,000/- MADE U/S 37(1) OF THE ACT IN RESPECT OF DAMAGES PAID FOR NON- PERFORMANCE OF CONTRACT OBLIGATIONS. 2. THE FACTS RELATING THERE TO ARE STATED IN BR IEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CASHEW KERNELS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED A SUM OF RS.4,50,000/-, BEING THE DAMAGES PAID TO A FOREIGN BUYER FOR THE DELAY IN EXECUTION OF EXPORT CONTRACT , AS EXPENSE. THE AO TOOK THE VIEW I.T.A. NO. 504/COCH/2010 2 THAT THE SAID PAYMENT IS PENAL IN NATURE AND HENCE NOT ALLOWABLE AS EXPENDITURE AS PER EXPLANATION TO SECTION 37(1) OF THE ACT. THE LD CIT (A) ALSO CONFIRMED THE SAID DISALLOWANCE AND HENCE THE ASSESSEE IS IN APPEAL BE FORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. THE IMPUGNED DISALLOWANCE OF RS.4,50,000/- HAS BEEN MADE BY INVO KING THE EXPLANATION TO SECTION 37(1) OF THE ACT. THE SAID EXPLANATION READS AS UND ER: EXPLANATION:- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E ASSESSEE HAS PAID THE IMPUGNED AMOUNT OF RS.4,50,000/- AS DAMAGES TO THE FOREIGN B UYER FOR THE DELAY IN EXECUTION OF EXPORT CONTRACT. SUCH PAYMENTS ARE USUALLY MADE IN PURSUANCE OF BINDING AGREEMENT ENTERED BETWEEN THE PARTIES. IF THE SAID BINDING A GREEMENTS ARE CONSIDERED TO BE LEGALLY VALID, THEN THE DAMAGES PAID IN ACCORDANCE WITH THE TERMS OF SUCH LEGALLY BINDING AGREEMENT SHOULD BE CONSIDERED AS EXPENDITU RE LEGALLY INCURRED. ON A PLAIN READING OF THE EXPLANATION TO SEC. 37(1) EXTRACTED A BOVE, WE ARE OF THE VIEW THAT SUCH KIND OF PAYMENTS ARE NOT ATTRACTED BY THE SAID PROV ISION, SINCE IN OUR VIEW THE IMPUGNED PAYMENT IS NOT TOWARDS ANY PURPOSE WHICH I S AN OFFENCE OR PROHIBITED BY LAW. IT IS PERTINENT TO NOTE THAT THE LD CIT(A) HAS GIVEN A SPECIFIC FINDING THAT THE IMPUGNED PAYMENT IS ACTUALLY COMPENSATORY IN NATURE . IN VIEW OF THE FOREGOING, IN OUR VIEW, THE IMPUGNED AMOUNT CANNOT BE DISALLOWED BY I NVOKING THE EXPLANATION TO SECTION 37(1). ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE. I.T.A. NO. 504/COCH/2010 3 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED ON 29-02-2012 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER ERNAKULAM DATED: 29TH FEBRUARY, 2012 GJ COPY TO 1 SHRI JACOB C.LUKE, PROP: NOBLE CASHEW INDUSTRIES, KOTTARAKKARA, KOLLAM 2 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1 , KOLLAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVAN DRUM. 4 THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. THE DR, ITAT, COCHIN BENCH. 6 GUARD FILE. BY ORDER A SSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH