DCIT, CIR-7(1), KOLKATA, Kolkata V. M/s Ripley & Company Stevedoring and Handling Pvt. Ltd., Kolkata

ITA 555/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1247 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH CIT LD
• Assessee Lawyers: SOMNATH GHOSH LD
• Keywords: Business expenditure

Judgement Text

1 ITA NO. 555/KOL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: K OLKATA BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JU DICIAL MEMBER I.T.A NO. 555/KOL/2015 A.Y: 2011-12 D.C.I.T, CIR-11, KOLKATA VS. M/S. RIPLEY & COMPAN Y STEVEDORING & HANDLING PVT. LTD. PAN: AAACCR 4027R [APPELLANT] [RESPONDEN T] FOR THE APPELLANT : SHRI KALYAN NATH, ADDL. C IT, LD.SR.DR FOR THE RESPONDENT : SHRI SOMNATH GHOSH, ADVOCA TE, LD.AR DATE OF HEARING : 02-08-2017 DATE OF PRONOUNCEMENT : 13-10-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT. 27-02-2015 PASSED BY THE CIT-A, 3, KOLKATA FOR THE ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE IN THIS APPEAL IS TO BE DECIDED A S TO WHETHER THE CIT-A IS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.28,18,316/- MADE ON ACCOUNT OF DEMURRAGE AND PENALTY CHARGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LD. DR RELIED ON THE ORDER OF THE AO. 4. ON THE OTHER HAND, THE LD. AR SUBMITS THAT THE I SSUE IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL ON IDENTICAL ISSUE DECIDED IN ASSESSEES OWN CASE IN ITA NOS. 24 0/KOL/2012 & 2223/KOL/2013 FOR THE A.YS 2008-09 & 2010-11, COPIE S OF THE SAME ARE PLACED ON RECORD. HE REFERRED TO PARAS 6 & 6.1 FOR THE ORDERS OF A.Y 2008-09 AND PARAS 9 & 10 FOR THE A.Y 2010-11 AN D ARGUED THAT PAYMENT OF DEMURRAGE AND PENALTY CHARGES ARE INCIDE NTAL TO BUSINESS AND NOT IN THE NATURE OF PUNITIVE CHARGES. 2 ITA NO. 555/KOL/2015 5. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN ITS ORDER FOR THE A.Y 2008-09 ALLOWED THE CLAIM OF THE ASSESSEE O N IDENTICAL ISSUE BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS. JIYAJEERAO COTTON MILLS LTD AND HELD THAT THE IMPUGNED AMOUNTS BY WAY OF DEMURRAGE AND PENALTY CHARGES ARE IN THE NATURE OF CONTRACTUAL OBLIGATION CAN BE ALLOWED AS BUSINESS EXPENDITURE. RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW:- PARA 6 & 6.1 FOR THE A.Y 2008-09: 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT THE TRIBUNAL IN ASSESSEE'S OWN CASE EARLIER HAS DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE. IN THIS REGARD THE TRIBUNAL'S DECISION IN ASSESSEE'S OWN CA SE IN ITA NO.334/KOL/2001 FOR A.YR. 1997-98 AND ITA NO.687/KO1/2002 FOR A.YR.1998-99 AR E RELEVANT. SINCE IT HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE ON I DENTICAL ISSUE THERE IS NO REASON TO DIFFER FROM THE SAME. MOREOVER, THE CASE LAW OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS JIYAJEERAO COTTON MILLS LTD. (SUPRA ) ALSO SUPPORTS THE ASSESSEE'S CASE. IN THIS CASE THE HON'BLE JURISDICTIONAL HIGH COURT HAS EXPOUNDED AS UNDER :- 'THE GOODS WERE NOT DELIVERED IN TIME AND THEREBY A PENALTY UNDER THE DEFAULT CLAUSE HAD TO BE PAID. IT IS NOT A PENALTY FOR BREACH OF A NY LAW. THE PAYMENT WAS MADE ON ACCOUNT OF THE CONTRACTUAL OBLIGATION UNDER THE AGR EEMENT. WHEN THE GOODS WERE NOT DELIVERED WITHIN THE STIPULATED PERIOD, AN EXTRA AM OUNT, DESIGNATED 'PENALTY' HAD TO BE PAID. THIS WAS DONE IN COURSE OF CARRYING ON THE BU SINESS BY THE ASSESSEE. USUALLY, TIME IS NOT OF THE ESSENCE OF THE CONTRACT, BUT THE PART IES ARE ENTITLED TO MAKE IT SO BY INSERTING A SPECIFIC CLAUSE IN THE CONTRACT. THE PA RTIES ARE ENTITLED TO FIX THE TIME WITHIN WHICH THE GOODS MUST BE DELIVERED AND TO STIPULATE THAT IF THERE IS ANY FAILURE TO DELIVER THE GOODS WITHIN THE CONTRACTED PERIOD, EXTRA MONEY WILL HAVE TO BE PAID TO COMPENSATE THE BUYER FOR NON-DELIVERY OF THE GOODS IN TIME. IN THE INSTANT CASE, THERE WAS SPECIFIC REQUIREMENT TO DELIVER THE GOODS IN TIME AND A PENA LTY CLAUSE FOR DEFAULT. THESE RIGHTS AND OBLIGATIONS AROSE IN COURSE OF CARRYING ONE OF THE BUSINESS OF BUYING AND SELLING GOODS. ONE FAILS TO SEE HOW THIS PAYMENT MADE UNDER A CONTRACTUAL OBLIGATIONS CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. AMOUNT PAID FOR NON-DELIVERY OF GOODS IN TIME IS AL LOWABLE AS DEDUCTION EVEN THOUGH SUCH AMOUNT IS DESIGNATED AS 'PENALTY' IN THE SUPPL Y CONTRACT, TIME BEING THE ESSENCE OF THE CONTRACT. ' 6.1 THUS-WE FIND THAT WHEN THE AMOUNTS ARE PAID ON CONTRACTUAL OBLIGATION THE SAME HAVE TO BE ALLOWED AS BUSINESS EXPENDITURE. THE AMO UNT PAID FOR NON DELIVERY OF GOODS IN TIME IS ALLOWABLE AS' DEDUCTION EVEN THOUGH SUCH AMOUNT IS DESIGNATED AS 'PENALTY' IN THE SUPPLY CONTRACT, TIME BEING THE ESSENCE OF THE CONTRACT. IN VIEW OF THE ABOVE DISCUSSIONS AND PRECEDENT WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY WE UPHOLD THE SAME. 6. IN THE LIGHT OF ABOVE OBSERVATION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL ON IDENTICAL ISSUE IN THE CASE OF ASS ESSEES SISTER CONCERN COMPANY I.E. M/S. REPLY & CO. LTD FOR THE A.YS 200 8-09 AND 2010- 11, WE HOLD THAT PAYMENT INVOLVING OF RS.28,18,316 /- ON ACCOUNT OF DEMURRAGE AND PENALTY CHARGES ARE HELD TO BE INCID ENTAL TO BUSINESS EXPENDITURE AND ASSESSEE IS ENTITLED TO CLAIM THE S AME AS BUSINESS 3 ITA NO. 555/KOL/2015 EXPENDITURE. WE FIND THAT THE CIT-A WHILE DECIDING THE ISSUE(S) RAISED BY THE ASSESSEE BEFORE HIM CONSIDERED THE SAID ORDE R OF THIS TRIBUNAL AND ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, T HE IMPUGNED ORDER OF THE CIT-A ON THIS ISSUE IS JUSTIFIED. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SAME. THEREFORE, THE GROUNDS RAI SED BY THE REVENUE INVOLVING THE IMPUGNED ADDITION ARE DISMISS ED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13-1 0-2017 SD/- SD/- J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13-10-2017 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT / REVENUE : THE DEPUTY COMMISSIONER OF INCOME - TAX, CIR - 11, AAYKAR BHAWAN,P-7, CHOWRINGHEE SQUARE, KOLKATA-69. 2 RESPONDENT / ASSESSEE: M/S. RIPLEY & COMPANY STEVEDORING & HANDL ING PVT. LTD, BHAGYAKUL MANSION, C BLOCK, 1 ST FLOOR, 22 LEE ROADREVENUE: THE DEPUTY COMMISSIONER OF INCOME-TAX, CIR-11, AAYKAR BHAWAN,P-7, CHOWRINGHEE SQUARE, KOLKATA-69. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOL KATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA