CARGOTEC INDIA PVT LTD.,NAVI MUMBAI vs. ASST CIT 15(1)(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/ACIT-15(1)(2)/IT-158/2016-17 dated 31/10/2019

ITA No.400/Mum/2020 This appeal in for A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/10085/2014-15 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 19/03/2014 by the ld. Dy. Commissioner of Income Tax (OSD)-10(3), Mumbai (hereinafter referred to as ld. AO).

ITA No.401/Mum/2020 This appeal in for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/ACIT-15(1)(2)/IT-235/15-16 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2015 by the ld. Asst. Commissioner of Income Tax-15(1)(2), Mumbai (hereinafter referred to as ld. AO).

Identical issues are involved in these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.

2. With the consent of both the parties, the appeal for the Asst Year 2010-11 in is taken as the lead year and the M/s. Cargotec India Pvt. Ltd., decision rendered thereon would apply with equal force for other assessment years also in respect of identical issues , except with variance in figures.

4.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a private limited company engaged in the business of manufacturing, trading, servicing, distributing , re-engineering and designing of material handling equipment and machinery parts. During the course of assessment proceedings, the assessee was asked to submit the details of miscellaneous expenses which were submitted by the assessee vide letter dated 17.12.2013. In response to the show cause notice, the assesseeexplained that the amount of Rs 1,02,603/- comprised of Rs 25,983/- charged by Gateway Terminals India Private Limited towards liquidated damages on account of deficiency in service of maintaining fuel efficiency under operation and maintenance contract and Rs 76,620/- towards interest on delayed payment of VAT. The ld AO did not heed to the contentions of the assessee and proceeded to disallow the same by applying the Explanation 1 to section 37(1) of the Act, which was upheld by the ld CITA.

M/s. Cargotec India Pvt. Ltd., 4.2. We find from the facts narrated before the lower authorities, the assessee had incurred this liquidated damages of Rs 25,983/- pursuant to addendum dated 27.7.2009 to agreement dated 9.6.2006 with JNPT for operation and maintenance of Rubber Tyred Gantry Cranes, wherein the assessee had to fulfil certain performance parameters in respect of fuel efficiency, which was not done by the assessee. The said addendum also provided that in case if the assessee does not meet diesel fuel utilisation criteria, JNPT will charge back to the assessee, the excess fuel utilised at prevailing market rate limited to 12% of the bill amount charged during the months. The assessee had raised an invoice of Rs 1,40,000/- to JNPT on 30.4.2009 in respect of services provided during the period 1.4.2009 to 24.4.2009, against which , JNPT made payment of Rs 1,14,017/- and deducted an amount of Rs 25,983/- towards liquidated damages on account of deficiency in service for non-fulfilment of the obligation regarding adherence to a particular quality of service of fuel efficiency. Hence it is payment made for breach of contractual obligation by the assessee. These facts are not disputed by the revenue. Hence we hold that any payment made for breach of contractual obligation in the form of liquidated damages, cannot be construed as penal in nature. Hence the provisions of Explanation 1 to section 37(1) of the Act cannot be brought into operation at all in the facts of the instant case. Accordingly, we direct the ld AO to grant deduction of Rs 25,983/- towards liquidated damages.

4.3. We find that the assessee had remitted the VAT dues to the Government with some delay for which it had duly suffered interest upto the date of payment. This interest payment of Rs 76,620/- is purely compensatory in nature and becomes an allowable deduction. The same cannot be construed as penal in nature and does not fall within the M/s. Cargotec India Pvt. Ltd., provisions of Explanation 1 to section 37(1) of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of the Hon‟ble Supreme Court in the case of Lachmandas Mathuradas reported in 254 ITR 799 (SC) , wherein it was held that the interest on sales tax is compensatory in nature and would be allowable as deduction in computing profits of the business. Accordingly, we direct the ld AO to grant deduction of Rs 76,620/- towards interest on delayed payment of VAT.

4.4. The Ground Nos. 5 & 6 raised by the assessee are allowed.

5.1. We have heard the rival submissions and perused the materials available on record. We find that during the course of assessment proceedings, the assessee was asked to submit the details of bad debts written off, which were duly submitted vide letter dated 17.12.2013. The bad debts represented excise duty paid of Rs 6,36,480/- and deposits written off of Rs 67,350/- . The assessee submitted the Supplementary Central Excise Audit Report dated 16.12.2005 in which observation was made that goods were undervalued and therefore excise duty of Rs 6,24,000/- at the rate of 16% plus education cess of Rs 12,480/- was levied on the differential value in respect of the following customers:-

Customers Standard Invoice Differential Value Value Value Road Wings 1,20,00,000 1,11,00,000 9,00,000 Hari & Co 1,20,00,000 1,13,00,000 7,00,000 Fly Jack 2,40,00,000 2,26,00,000 14,00,000 Kanishka Steel 1,20,00,000 1,11,00,000 9,00,000

M/s. Cargotec India Pvt. Ltd., 5.2. The assessee submitted that it was unable to recover the excise duty on the differential sale amount from the customers and had therefore written off the amount of excise duty in the sum of Rs 6,36,480/- being 16% of Rs 39,00,000/- (Rs 6,24,000/-) and education cess of Rs 12,480/- These contentions were not appreciated by the ld AO on the ground that the same falls within the Explanation 1 to section 37(1) of the Act and hence the ld AO proceeded to disallow the same, which action was upheld by the ld CITA.

5.3. With regard to deposits written off of Rs 67,350/- ,the assessee submitted the break up of deposits written off as under:-

Deposit with sales tax department Rs 20,000/- Telephone Deposit Rs 37,350/- Cylinder Deposit with Sri Sai Enterprises Rs 10,000/- --------------- Rs 67,350/- 5.3.1. We find that the assessee had submitted that the aforesaid deposits were paid by the assessee company in the ordinary course of its business and since the same could not be recovered from the concerned parties, the same were sought to be written off by the assessee by debiting Bad debts written off. The ld AO proceeded to disallow the same by stating that the same falls within the Explanation 1 to section 37(1) of the Act. This was upheld by the ld CITA. We find that under invoicing of sale amounts got triggered pursuant to the Central Excise Audit conducted in earlier years and Audit Report dated 16.12.2005 was submitted wherein the under invoicing of sales to the extent of Rs 39 lacs was pointed out to the assessee, which fastened an excise duty liability of Rs 6,36,480/- on the assessee. We find that this payment of Rs 6,36,480/- towards excise duty does not include any penalty for any M/s. Cargotec India Pvt. Ltd., violation of any law in force. Since the additional excise duty liability fastened on the assessee company could not be recovered from the customers, but still the assessee had to pay the same to the Government, the said excise duty of Rs 6,36,480/- was duly paid by the assessee and claimed as deduction during the year on the ground of bad debts written off. This is in our considered opinion, is squarely allowable as deduction both u/s 43B as well as u/s 36(1)(vii) of the Act. Hence we direct the ld AO to allow the same as deduction.

5.4. With regard to deposits written off in the sum of Rs 67,350/-, we find that these are regular business deposits paid by the assessee in its ordinary course and since the said deposits were not recoverable by the assessee company, the same were sought to be written off by the assessee in its books of accounts and claim the said business loss as deduction. The fact of those deposits becoming irrecoverable is not disputed by the revenue before us. Hence the regular business deposits which became irrecoverable, when written off, would be squarely allowable as deduction u/s 28 of the Act as a business loss. We direct the ld AO accordingly.

5.5. Accordingly, the Ground No. 7 raised by the assessee is allowed.

M/s. Cargotec India Pvt. Ltd., deposits written off by the assessee in its books, as submitted before the ld AO are as under:-

Party Name Cl. Bal Recoverable From GVK 12,18,607.75 B.B Patil 2.00 Avinash Gokhale 2,763.00 Trinity Air Travel & Tours Pvt Ltd - 21.00 Mac St. John Transport & Heavy -1.00 Equipment P Ltd Armugam Perumal -Advance 5.000.00 Amrita Consultancy 9,96,419.00 Allcargo Global Logistic Limited 2,33,759.52 Visakapatnam Port Trust 4.00 Seabridge Maritime Agencies Pvt Ltd. 22.00 Macgregor Hvdramarine, AS - STPI 165.45 Write-off against Pune office 21,192.35 Premises Hind Terminal Pvt. Ltd. -727.00 Immaterial Rounding-off Differences -2.92

Total Rs. 24,77,225.15

M/s. Cargotec India Pvt. Ltd., 6.2. The assessee had submitted before the lower authorities that the trade advances / deposits written off were advanced in the ordinary course for business purposes only and submitted the ledger account of the parties wherein adjustment was made in respect of advances / deposits written off. The ld AR before us submitted the party wise details of various advances / deposits that were sought to be written off together with the reasons for the write-off and decisions relied upon by him for allowability of the same, as under:- Sr. Particulars Amount Nature of Comments (In Rs.) advance/deposit No.

M/s. Cargotec India Pvt. Ltd., Co. Ltd. [1994] 205 ITR 578. The High Court held that in case of embezzlement of money by servants or agents of assessee given for excise duty payment, loss of money must be regarded as having arisen in course of carrying on business of assessee. Further, reliance in this connection is placed on Kerala High Court decision in case of Churakulam Tea Estates (P.) Ltd. [1995] 81 Taxman 214.

9. Armugam 5,000 Advance given to However, employee has employee for not submitted supporting Perumal expenses claim and hence official visit to Advance written off. Cochin.

M/s. Cargotec India Pvt. Ltd.,

10. Amrita 9,96,419 Advance given for In the year under interior work of consideration, the appellant Consultancy was maintaining separate Vashi office books of accounts for head office (Mumbai) and branch office (Bangalore). In branch books of accounts, interior work related expenditures were booked and payments were made except last payment of Rs. 9,69,419. Further, in branch books of accounts, there was an expense account named Mumbai - Office Expenses, all the expenses related to Head Office were debited to this account and was shown under the head Miscellaneous Expenses in the Financials. In the financial year 2008-09, interior expense of Rs. 43,96,419 was capitalized as against invoice of Rs. 34,00,000. Credit balance of Rs. 9,96,419 had overall reduced Miscellaneous expenses. Therefore, debit balance of Rs. 9,96,419 was written off in financial year 2009-10. Ledger account of Mumbai - Office expenses and Amrita Consultancy is enclosed at pages 36 and 37 of the enclosed compilation. In this connection, the appellant places reliance on the decision of Supreme Court in case of Excel Industries Ltd. [2013]358 ITR 295 wherein it held that if there is no difference in the rate of tax, the controversy about the year of assessability is unnecessary and should be M/s. Cargotec India Pvt. Ltd.,

avoided.

13. Se abridge 22 Rounding off difference Maritime Agencies Pvt. Ltd.

M/s. Cargotec India Pvt. Ltd., 6.3. We find that the aforesaid deposits / advances written off were sought to be disallowed by the ld AO on the ground that no evidences were furnished by the assessee. But we find that from the bare perusal of the aforesaid chart, all the advances / deposits were given only in the ordinary course of its business by the assessee company. However, since the same were not properly examined by the ld AO in the original assessment proceedings, in the interest of justice and fairplay, we deem it fit and appropriate, to restore this issue to the file of ld AO for denovo adjudication in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to furnish fresh evidences, if any, in support of its contentions. Accordingly, the Ground No. 8 raised by the assessee is allowed for statistical purposes.

7.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee being eligible for deduction u/s 10A of the Act is absolutely not in dispute. We find that the assessee has a unit “Cargotec Engineering India” in the Software Technology Park of India (STPI) at Pune engaged in the business of export of software. For the Asst Year 2010-11, the assesee claimed deduction u/s 10A of the Act amounting to Rs 30,85,488/-. The assessee duly submitted Form 56F, computation of deduction u/s 10A of the Act, segment report and trial balance of STPI unit vide letter dated 1.10.2013

M/s. Cargotec India Pvt. Ltd., before the ld AO. The ld AO restricted the claim of deduction u/s 10A of the Act by setting off the loss incurred by the non-eligible unit of the assessee with the profits made by the STPI unit which is eligible for deduction u/s 10A of the Act, which action was upheld by the ld CITA also. We find that this issue is no longer res integra in view of the decision of the Hon‟ble Supreme Court in the case of CIT vs Yokogawa India Ltd reported in 391 ITR 274 (SC) wherein it was held as under:-

Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.

7.2. Respectfully following the aforesaid decision, we decide this ground no. 9 in favour of the assessee.

M/s. Cargotec India Pvt. Ltd., of the Act while passing the order giving effect to this tribunal order. The ld AO is also directed to determine the figure of carry forward of losses in accordance with law. Accordingly, the Ground No. 12 raised by the assessee is allowed for statistical purposes.

11. The Ground Nos. 14 & 15 raised by the assessee are general in nature and does not require any specific adjudication.

ITA No. 401/Mum/2020 – Asst Year 2011-12

M/s. Cargotec India Pvt. Ltd.,

14. The Ground No. 6 raised by the assessee for the Asst Year 2011-12 is challenging the disallowance of interest u/s 36(1)(iii) of the Act.

14.1. We have heard the rival submissions and perused the materials available on record. We find that during the course of assessment proceedings, the assessee was asked to submit the details of capital work in progress, which were duly submitted vide letter dated 27.1.2015. The copy of audited financial results were also submitted to the ld AO by the assessee. The ld AO presumed that Capital Work in Progress of Rs 1,13,49,361/- was invested out of interest bearing borrowed funds and accordingly disallowed interest u/s 36(1)(iii) of the Act in the sum of Rs 4,15,922/- on proportionate basis, alleging that the borrowed funds were diverted for non-business purposes. This action was upheld by the ld CITA. We find from the perusal of the balance sheet of the assessee for the year under consideration, that the assessee is having sufficient own funds of Rs 77.04 crores which is several times more than the Capital Work in Progress figure of Rs 1.13 crores. Hence it could be safely presumed that the Capital Work in Progress had been invested only out of own funds and not out of borrowed funds, by following the ratio laid down by the Hon‟ble Jurisdictional High Court in the case of HDFC Bank reported in 366 ITR 505 (Bom). Respectfully following the same, we direct the ld AO to delete the disallowance of interest u/s 36(1)(iii) of the Act. Accordingly, the Ground No. 6 raised by the assessee for the Asst Year 2011-12 is hereby directed to be allowed.

M/s. Cargotec India Pvt. Ltd.,

16. The Ground No. 8 raised by the assessee is with regard to deduction for share issue expenses.

16.1. We have heard the rival submissions and perused the materials available on record. We find that during the year under consideration the assessee had incurred an amount of Rs 40,00,020/- towards share issue expenses. In the return of income, it had disallowed only an amount of Rs 8,00,000/-. Hence the ld AO disallowed the remaining sum of Rs 32,00,020/- in the assessment as the same was incurred towards stamp duty and filing fees for increase in authorised share capital of the assessee company. This action was upheld by the ld CITA. We find that there is no dispute that the amounts spent on account of share issue expenses were incurred only for increasing the authorised share capital of the assessee company. We find that the Hon‟ble Supreme Court in the case of Brooke Bond India Ltd vs CIT reported in (1997) 12 SCL 83 (SC) dated 27.2.1997, had held that expenditure incurred on issuing share to increase share capital by a company would not be allowable as revenue expenditure and it would only be capital in nature. Respectfully following the said decision, the Ground No. 8 raised by the assessee is hereby dismissed.

17. The Ground No. 10 raised by the assessee for the Asst Year 2011-12 is identical to Ground No. 13 raised for Asst Year 2010-11 and hence the decision rendered thereon would apply with equal force for this Asst Year also , except with variance in figures.

M/s. Cargotec India Pvt. Ltd., that if there are certain factual errors in the order of the ld CITA, the assessee should seek appropriate remedy before the ld CITA in the manner known to law. Accordingly, the Ground No. 11 raised by the assessee for the Asst Year 2011-12 is dismissed with liberty given to the assessee to take appropriate remedy, if it so desires, before the appropriate forum, in the manner known to law.

22.1. We have heard the rival submissions and perused the materials available on record. We find that in the profit and loss account of the assessee company for the year under consideration, an amount of Rs 22,30,66,072/- was debited in respect of Other Expenses , which included an amount of Rs 20,54,889/- towards provision for warranties. During the M/s. Cargotec India Pvt. Ltd., course of assessment proceedings, the ld AO vide notice u/s 142(1) of the Act dated 4.3.2016 directed the assessee to provide details as under:-

“2. Justify the claim of Rs 22.30 under the head other expenses . Why the same shoud not be disallowed adhoc basis.”

22.2. We find that the assessee had filed its reply vide letter dated 14.3.2016 stating that there were multiple accounts grouped under the head „Other Expenses‟ and provided account wise ledger extract for each of the accounts. But in the assessment order, the ld AO observed that no explanation was offered by the assessee regarding provision for warranties to the tune of Rs 20,54,889/- and hence proceeded to disallow the same on that count. The main grievance of the assessee was that no opportunity was provided to the assessee in this regard by the ld AO in the assessment proceedings. We find that the assessee had furnished detailed explanation with regard to the provision for warranties before the ld CITA together with the basis of making the provision, its allowability as deduction in the earlier assessment years and with various decisions of Hon‟ble Supreme Court and Hon‟ble High Courts. We find that the ld CITA had simply brushed aside all the arguments of the assessee and made general observations which are not at all germane to the issue in dispute before him and upheld the action of the ld AO. We find that since sufficient opportunity was not given to the assessee by the ld AO in the assessment proceedings itself, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue to the file of ld AO for denovo adjudication in accordance with law by duly considering all the submissions of the assessee in this regard. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also at liberty to furnish fresh evidences, if any, in support of its M/s. Cargotec India Pvt. Ltd., contentions. Accordingly, the Ground Nos. 6 & 7 raised by the assessee for the Asst Year 2013-14 are allowed for statistical purposes.

Order pronounced on 18/08/2021 by way of proper mentioning in the notice board.