HAFFKINE BIO PHARMACEUTICAL CORP. LTD, MUMBAI V. ACIT 6(3), MUMBAI

ITA 8424/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3508 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 04-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37; 28

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. . , !' !' !' !' / #$%& #$%& #$%& #$%& , $ $ $ $ '( '( '( '( BEFORE S/SH. D.MANMOHAN, VICE-PRESIDENT & RAJE NDRA,ACCOUNTANT MEMBER ./ ITA NO.8424/MUM/2010, ) ) ) ) / ASSESSMENT YEAR-2006-07 M/S HAFFKINE BIO PHARMACEUTICAL CORP.LTD,ACHARYA DONDE MARG, PAREL,MUMBAI-400012 VS. ASSISTANT COMMISSIONER OF INCOME TAX, 6(3), MUMBAI. PAN: AAACH0965N ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) *+ *+ *+ *+ . . . . $ $$ $ / APPELLANT BY : MAYUR MAKADIA ,-*+ / . $ / RESPONDENT BY : A.K.KARDAM / // / 0 0 0 0 / DATE OF HEARING : 04-06-2013 1) / 0 / DATE OF PRONOUNCEMENT : 12-06-2013 , 1961 / // / 254(1) $ $$ $ %02 %02 %02 %020 00 0 '$3 '$3 '$3 '$3 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DT.11-08-2010 OF THE CIT(A)-1 2, MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN LAW IN UPHOLDING THE DISALLOWANCE OF (RS.9,68,813/- BEING LIQUIDATED DAMAGES CHARGED BY GOVERNMENT OF INDIA ON ACCOUNT OF DELAY IN SUPPLY OF VACCINES, ON THE GROUND THAT THE SAID AMOUNT IS PAID AS PENALTY AND THEREFORE NO COVERED U/S 37; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN LAW IN UPHOLDING THE DISALLOWANCE OF THE FOLLOWING AMOU NTS WRITTEN OFF AS IRRECOVERABLE U/S 37: A) RS.2,01,470/- BEING UNMOVED STAFF ADVANCES SINCE 1999-2000. B) RS.2,21,443/- BEING ADVANCES TO VARIOUS GOVERNME NT DEPARTMENTS FOR UNDERTAKING CIVIL MAINTENANCES JOB. C) RS.1,37,949/- BEING SUNDRY UNRECONCILED BALANCES LYING IN VARIOUS ACCOUNTS. 3. WITHOUT PREJUDICE TO THE ABOVE , THE LD. CIT(A) SHOULD HAVE APPRECIATED THAT SINC E THE NON RECOVERABLE BALANCES WERE IN REGULAR COURSE OF BUSI NESS THE SAME WERE ALLO9WABLE AS A BUSINESS 2 ITA NO.8424/MUM/2010,(AY-2006-07) LOSS U/S 28 OR U/S 37. 4. THE APPELLANT RESERVES ITS RIGHT TO ADD, AMEND A LTER OR DELETE ANY OF THE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY,A PUBLIC SECTOR UNDERTAKING, ENGAG ED IN THE BUSINESS OF MANUFACTURING OF VACCINES AND LIFE SAVING DRUGS FILED ITS RETURN OF INCOME ON 25.11.2006 DECLARING TOTAL INCOME OF RS.79.24 LAKHS. ASSESSMENT WAS FINALISED BY THE AS SESSING OFFICER(AO) ON 28.11.2008 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. NIL,AFTER BRINGING BROUGHT FORWARD LOSSES OF THE AY. 2004-05.DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.19.37 LAKHS AS SUNDRY BALANCES WRITTE N OFF.HE DIRECTED THE ASSESSEE TO SUBMIT THE DETAILS OF THE SAME AND ALSO ASKED TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HE HELD THAT THE EXPLANATION OFFERED BY THE ASSESSEE FOR WRITING OFF SUNDRY BALANCES WAS NOT IN CONFORMITY WITH THE CONDITIONS PRESCRIBED BY LAW, THAT ASSESSEE DID NOT FILE THE DETAILS OF N ATURE OF DEBT AND THE YEAR IN WHICH THE SAME HAD BEEN WRITTEN OFF, THAT TO CLAIM BAD DEBTS BURDEN WA S ON THE ASSESSEE THAT THE DEBTS HAS BECOME BAD.FINALLY,HE DISALLOWED RS.19.37 LAKHS WRITTEN O FF BY THE ASSESSEE UNDER THE HEAD SUNDRY BALANCES. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). BEFORE FAA, BREAK UP OF RS.19.37 LAKHS WAS GIVEN BY THE A SSESSEE WHICH IS REPRODUCED HERE : NAME OF THE PARTY AMOUNT REASONS FOR WRITE OFF GOVERNMENT OF INDIA 9,68,813 LIQUIDATE DAMAGES DEDU CTED BY THE GOVERNMENT OF INDIA ADVANCE GIVEN TO STAFF 2,36,455 EMDS NOT RECOVERED FROM THE RESPECTIVE PARTIES ADVANCES GIVEN FOR CIVIL DEPARTMENT FOR SUNDRY MAINTENANCE WORKS 2,62,463 EXPENSES REMAINED TO BE BOOKED VARIOUS SUNDRY DEBTORS 36,670 UNMOVED BALANCES FOR SEVERAL YEAR EXCISE DUTY NOT RECOVERED 49,960 UNMOVED BALANCES FOR SEVERAL YEAR ADVANCE PAYMENTS FOR PURCHASES 41,049 SUNDRY ADVA NCES REMAINING UNMOVED FOR MORE THAN 10 YEARS OTHER SUNDRY BALANCES/DEPOSITS WRITTEN OFF 1,37,949 UN-RECONCILED/UNMOVED BALANCES TOTAL 19,37,829 2.2. ABOUT THE FIRST ITEM OF RS.9,68,813/-,IT WAS SUBMIT TED THAT THE ASSESSEE-COMPANY HAD PAID LIQUIDATION DAMAGES CHARGED TO GOVERNMENT OF INDIA FOR VIOLATION OF CONTRACT REGARDING ISSUE OF DELAY IN THE DELIVERY OF VACCINES. THE FAA HELD T HAT FROM THE STATEMENT OF THE ASSESSEE IT WAS NOT CLEAR THAT THE AMOUNT IN QUESTION RELATED TO P ENALTY IMPOSED BY THE GOVERNMENT OF INDIA ON THE APPELLANT IN RESPECT OF BREACH OF CONTRACT REGA RDING THE CLAUSE CONCERNING TIME BOUND DELIVERY, THAT UNDER NO STRETCH OF IMAGINATION ONE COULD SAY THAT WAS A BAD DEBT, THAT PENALTY WAS IMPOSED FOR NON FULFILLING THE CONTRACT, THAT THE AMOUNT WAS NOT COVERED U/S 36(1)(VII)OF THE ACT, THAT THE SUBMISSIONS OF THE ASSESSEE TO TREAT THE SAME AS BUSINESS LOSS U/S 37.OF THE ACT WAS NOT ACCEPTABLE. THE FAA DECLINED TO INTERFERE WITH THE ORDER OF THE AO AND UPHELD THE ADDITION MADE BY HIM. 2.3. BEFORE US, AUTHORISED REPRESENTATIVE(AR)THAT THE AS SESSEE HAD ENTERED INTO AN AGREEMENT WITH GOVERNMENT OF INDIA, THAT AS PER THE AGREEMENT IT HAD TO SUPPLY MEDICINES ON SPECIFIC DATES, THAT ON A FEW OCCASIONS IT FAILED TO SUPPLY GOODS IN TIME, THAT BECAUSE OF THE SAID DELAY 3 ITA NO.8424/MUM/2010,(AY-2006-07) GOVERNMENT OF INDIA WITHHELD THE SOME PORTION OF TH E PAYMENT DUE TO THE ASSESSEE-COMPANY, THAT MONEY NOT RECEIVED BY THE ASSESSEE WAS CLAIMED AS BAD DEBTS WRITTEN OFF, THAT IT SHOULD BE ALLOWED EITHER AS BUSINESS EXPENDITURE OR AS BUSINE SS LOSS. HE REFERRED TO PAGES 11-19 AND 36-39 OF THE PAPER-BOOK. HE RELIED UPON THE CASES OF SARD AR PRIT SINGH DELIVERED BY THE HONBLE HIGH COURT OF PATNA(160ITR493)AND RELIABLE WATER SUPPLY SERVICES OF INDIA (PVT.)LTD. (124ITR199- HONBLE ALLAHABAD HIGH COURT).DEPARTMENTAL REPRESEN TATIVE(DR)SUPPORTED THE ORDER OF THE FAA AND SUBMITTED THAT PAYMENT IN QUESTION WAS PENA LTY, THAT SAME WAS NOT ALLOWABLE AS PER THE PROVISIONS OF THE SECTION 37 OF THE ACT. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND GOVT.OF INDIA FOR SUPPLY OF MEDICINES. AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT ASSESSEE HAD TO SUPPLY MEDICINES IN STIPULATED TIME FRAME AND IN CASE OF FAILURE TO ADHERE TO TIME SCHEDULE A SSESSEE HAD TO PAY LIQUIDATED DAMAGES TO THE BUYER.AS PER THE SPECIAL CONDITIONS TO THE CONTRACT IF THE SUPPLIER FAILED TO DELIVER ANY OR ALL GOODS WITHIN TIME PERIODS SPECIFIED IN THE CONTRAC T THE PURCHASER WOULD .DEDUCT FROM THE CONTRACT PRICE AS AGREED LIQUIDATED DAMAGES AND NOT BY WAY OF PENALTY, A SUM EQUIVALENT TO .. (CLAUSE 16).FROM THE ABOVE CLAUSE IT IS CLEAR THAT RS.9.68 LAKHS DEDUCTED BY GOVT.OF INDIA AS LIQUIDATED DAMAGE CANNOT BE TREATED AS BREACH/INFRI NGEMENT OF LAW OR AMOUNT PAID AS PENALTY. PROVISIONS OF SECTION 37 PROHIBITS ALLOWANCE OF PEN ALTY PAYMENTS ONLY. IN THE CASE UNDER CONSIDERATION ASSESSEE HAD WRITTEN OFF LIQUIDATED DAMAGE AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT.IN OUR OPINION PAYMENT OF LIQUIDATED DAMA GE HAS TO BE ALLOWED. WE FIND THAT HONBLE PATNA HIGH COURT IN THE CASE OF SARDAR PRIT SINGH(S UPRA) HAS HELD THAT DAMAGES FOR DELAY IN SUPPLY AND FOR SUPPLY OF ARTICLES OF INFERIOR QUALI TY WAS NOT A PENALTY FOR INFRACTION OF LAW HENCE SAME WAS DEDUCTIBLE AND BUSINESS EXPENDITURE. SIMIL ARLY, IN THE CASE OF RELIABLE WATER SUPPLY SERVICES OF INDIA (PVT.)LTD.(SUPRA) HONBLE ALLAHAB AD HIGH COURT HAS HELD THAT AMOUNTS PAID TO GOVERNMENT AS PENALTY AND DAMAGES FOR DELAY IN EXEC UTION OF CONTRACTS WAS A DEDUCTIBLE ITEM.RESPECFULLY FOLLOWING THE ABOVE TWO DECISIONS WE REVERSE THE ORDER OF THE FAA. GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE . 3. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE UPHELD BY THE FAA UNDER THE HEAD UNMOVED STAFF ADVANCES, ADVANCES TO VARIOUS GOVERNMENT DEPARTMENT S AND SUNDRY UN-RECONCILED BALANCES. FIRST OF THESE THREE ITEMS IS RS.2.01 LAKHS. BEFORE US, A R DID NOT PRESS THE SAID GROUND OF APPEAL. PART A OF THE GROUND OF APPEAL NO.2 IS DISMISSED AS NOT PRESSED. 3.1. PART B OF THE GROUND ARE ABOUT ADVANCES GIVEN TO VA RIOUS GOVERNMENT DEPARTMENTS, INCLUDING THE PWD DEPARTMENTS.FAA HAS GIVEN A CATEGORICAL FIN DING OF FACT THAT NO DETAILS OF DEPARTMENTS EXCEPT FOR OF THE PWD DEPARTMENT WERE FURNISHED BEF ORE HIM. IN THESE CIRCUMSTANCES HE HELD THAT IN VIEW OF LACK OF PROOF THAT AS TO WHEN AND T O WHOM THESE ADVANCES WERE GIVEN SAME COULD NOT BE ALLOWED U/S.37 OR 36(1)(VII)OF THE ACT. BEFO RE US AR SUBMITTED THAT MATTER MIGHT BE DECIDED ON MERITS. DR SUPPORTED THE ORDER OF THE FA A.AFTER HEARING THE RIVAL SUBMISSIONS WE ARE OF THE OPINION THAT ORDER OF THE FAA DOES NOT S UFFER FROM ANY INFIRMITY. IN ABSENCE OF DETAILS OF EXPENDITURE CLAIMED BY THE ASSESSEE HE HAS RIGH TLY DISALLOWED THE CLAIM OF THE ASSESSEE. PART B OF GROUND NO.2 IS DECIDED AGAINST THE ASSESS EE . 3.2. PART C OF GROUND NO.2 PERTAINS TO UN-RECONCILED BAL ANCES OF RS.1.37 LAKHS.DURING THE COURSE OF HEARING BEFORE US, AR DID NOT PRESS THE SAID GRO UND. THEREFORE, PART C OF THE GROUND OF APPEAL NO.2 IS DISMISSED AS NOT PRESSED. GROUND NO. 2 IS D ECIDED AGAINST THE ASSESSEE . 4 ITA NO.8424/MUM/2010,(AY-2006-07) AS A RESULT APPEAL FILED BY THE A SSESSEE STANDS PARTLY ALLOWED. 4 05 40 / 63 8 $ 9: / # 0 ;. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE,2013 '$3 / 1) $ % = >' #: , 2013 / 2 ? SD/- SD/- ( . / D.MANMOHAN ) ( #$%& #$%& #$%& #$%& / RAJENDRA ) !' !' !' !' / VICE-PRESIDENT $ $ $ $ '( '( '( '( /ACCOUNTANT MEMBER / MUMBAI, >' /DATE: 12 TH JUNE, . 2013 '$3 '$3 '$3 '$3 / // / ,0@ ,0@ ,0@ ,0@ A$@)0 A$@)0 A$@)0 A$@)0 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / *+ 2. RESPONDENT / ,-*+ 3. THE CONCERNED CIT (A) / B C 4. THE CONCERNED CIT / B C 5. DR B BENCH, ITAT, MUMBAI / @D 2 ,0 , . . % . 6. GUARD FILE/ 2 E - @0 ,0 //TRUE COPY// '$3 / BY ORDER, / # DY./ASST. REGISTRAR , /ITAT, MUMBAI