Commissioner of Income Tax, V. M/s. Best India Tobacco Suppliers Private Limited,

ITTA/353/2012

AI Insights

The case involves two appeals by the Revenue against the decisions of the Income Tax Appellate Tribunal, Visakhapatnam Bench, which had allowed the claims of two assessees (a company and a partnership firm) engaged in tobacco exports. The assessees had entered into a contract with M/s.SNTA in Algeria for exporting tobacco, which was found infested with pests upon arrival, leading to a compensation agreement where the assessees agreed to export additional quantities free of cost. The assessees claimed these additional exports as losses in their accounts under 'Loss Due to Export Claim', which were initially disallowed by the Assessing Officer but later allowed by the Commissioner of Income Tax (Appeals). The Tribunal upheld this decision, leading to the Revenue's appeal, which was dismissed by the High Court.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 734691 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 03-10-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Compensation Agreement; Export Claim; Income Tax; Loss Due to Export Claim; Mercantile system of accounting
• Section: 260-A

Judgement Text

"THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.Nos.353 & 355 of 2012 COMMON ORDER (Per the Hon’ble Sri Justice Goda Raghuram): Revenue preferred these appeals under Section 260-A of the Income Tax Act, 1961. The Income Tax Appellate Tribunal, Visakhapatnam Bench (Tribunal) by its common order, dated 26.12.2011, in two appeals preferred by the Revenue I.T.A.No.221/Vizag/2000 and I.T.A.No.185/Vizag/2001, rejected the appeals insofar as the issue presented for consideration in these appeals is concerned. The respondent-assessee in I.T.T.A.No.353 of 2012 is a company and in I.T.T.A.No.355 of 2012 is a firm. Both assessees are in the business of tobacco exports. In November, 1991, the assessees entered into a contract with a company by name M/s.SNTA located in Algeria for exporting tobacco. While the assessee which is a company exported 1000 MT of tobacco, the partnership firm exported 1500 MT of tobacco, in January, 1994 and the proceeds realized in June, 1995. The exported goods were however found infested with pests and the fumigation process carried on by the assessees did not facilitate reduction in the weight of the tobacco. Consequently, M/s.SNTA, Algeria demanded compensation from the assessees. After a process of arbitration, on 20.06.1995 an agreement was entered into wherein the assessees agreed to compensate M/s.SNTA for the loss, by exporting 7.6% of the exported quantity free of cost. The value of the quantity to be compensated was estimated at Rs.34,20,000/- in respect of the company and at Rs.41,04,000/- in respect of the partnership firm. Since both the assessees were following the mercantile system of accounting, they accounted for the said amount as expenditure in their respective books of accounts under the head “Loss Due to Export Claim”. In the respective orders of Assessment, the Assessing Officer disallowed the losses claimed. Aggrieved, the assessees preferred appeals, which were allowed by the Commissioner of Income Tax (Appeals), Vijayawada. The Appellate Authority held that since it was not in dispute that the assessees had been exporters of dried tobacco; followed the mercantile system of accounting and the dispute was settled by the agreement dated 20.06.1995, wherein an accrual of liability was crystallized and quantified, the liability, even if postponed, does not postpone the accrual of liability and such estimated liability could be claimed, the assessees were entitled to claim the same as loss occasioned on account of the liability. Consequently, the Appellate Authority remanded the appeals directing the Assessing Officer to allow the claim of the assessees on the basis that the liability accrued during the previous years relevant to the Assessment Year 1996-97, for a sum of Rs.41,04,000/-, with the observation that whenever such free supply is actually exported, the resultant effect, whether positive or negative, could be worked out in that year. Rejecting the appeals by the Revenue against the orders of the Commissioner of Income Tax (Appeals), the Tribunal concurred by holding that the Appellate Authority committed no error in the analysis of the documentary evidence; applied the relevant and settled principles of accountancy; and that the liability of the assessees having been crystallized during the Assessment Year under consideration, they were entitled to claim the loss during the said year. In the circumstances, we find no question of law let alone a substantial question of law falling for consideration in these appeals preferred by the Revenue under Section 260-A of the Income Tax Act, 1961. The appeals are without merit and are accordingly dismissed at the stage of admission, after hearing Sri B. Narasimha Sarma, learned counsel for the appellants – Income Tax. JUSTICE GODA RAGHURAM JUSTICE M.S.RAMACHANDRA RAO Date: 03.10.2012 va THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.Nos.353 & 355 of 2012 (order of the Bench delivered by the Hon’ble Sri Justice Goda Raghuram) Date: 03.10.2012 va "