JCIT, (OSD), CIR-1(1), KOLKATA, KOLKATA vs. M/S ASSOCIATED TOOLINGS INDIA PVT. LTD., HOWRAH

आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-9, Kolkata dated 24.02.2016. Assessment was framed by DCIT, Circle-1, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 15.12.2011 for assessment year 2009-10. Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri Pawan Kumar Agarwal, Ld. Departmental Representative appeared on behalf of assessee. 2. The Revenue has raised following grounds:- “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing an unsubstantiated amount of commission of

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 2 Rs.37,66,311/- which despite all attempts made by the AO could not be verified during the assessment, nor during remand proceeding. 2. Whether on the acts and n the circumstances of the case, the Ld. CIT(A) erred in allowing an amount of Rs.21,16,819/- calling it late delivery charge and which had failed to pass the verification made by the AO. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding the los claimed upon the disposal of fixed assets as revenue loss especially where there was no option available to the assessee company not to claim no depreciation on the asset. 4. The Revenue shall always crave for adding or altering any ground on or before the date of hearing.” 3. First issue raised by Revenue in ground No. 1 is that Ld. CIT erred in deleting the addition made by the Assessing Officer for ₹37,66,311/- under the head “Commission” on account of non-confirmation from the parties. 4. Briefly stated facts are that assessee is a private limited company and in the year under consideration has incurred an expenditure of ₹78,37,313/- under the head “ commission” which was paid to six parties as detailed under:- Sl.No. Name of the party PAN No. Commission amount 1. Alliance Engineering & Marketing Service ABJPC1980B 3766311 2. Monabina Enterprise Pvt. Ltd. -- 741515 3. Mouzsumi Deb -- 115860 4. Paramount Engineers -- 1764700 5. R.K. Techno Engg. & Consultancy AVBVPR 2157F 1026371 6. Sobendu Dev -- 422556 7837313 The Assessing Officer, during the assessment proceedings issued notice u/s. 133(6) of the Act to three parties namely, Alliance Engineering & Marketing Service, (AEMS for short), R.K. Techno Engineering & Consultancy & Paramount to verify the genuineness of the commission expense claimed by assessee. However, there was no reply received by AO from AEMS. Thus, the AO disallowed the same on the ground that the amount of commission was not verified and added to the total income of assessee.

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 3 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that necessary details of the commission expenses to all the parties were filed at the time of assessment proceedings. The services rendered by the Commission agents were also explained to the AO. The AO did not provide sufficient opportunity to assessee for his confrontation in the event of no reply received from the commission agent, namely, AEMS. The assessee was informed by AEMS that a reply of the notice issued u/s 133(6) of the Act by AO was furnished to AO vide letter dated 06.12.2011 through registered post. The copy of the registered post was accordingly filed before the Ld. CIT(A). The assessee also filed copy of agreement with AEMS explaining the services rendered by it. Copy of the bills raised by AEMS were also filed before Ld. CIT(A) for his kind consideration and reference. Ld. CIT(A) called for remand report from the AO which was filed vide letter dated 20.01.2014 wherein it was alleged that the reply of AEMS does not specify the amount of total commission income earned by it and out of the total commission income how much was received from the assessee. The AO in its remand report also alleged that copies of account, profit and loss account and balance-sheet of AEMS were not filed during remand proceedings. However, assessee against the remand report submitted that the reconciled statement showing the total amount of commission payable vis-à-vis the commission accounted by AEMS was duly filed. The reconciliation was prepared in view of the fact that AEMS was maintaining its accounts on cash basis. At the stage of remand proceedings, AO did not provide opportunity to assessee to file the copies of accounts, copy of return, profit and loss account and balance-sheet of AEMS. Ld. CIT(A) after considering the submission of assessee and remand report deleted the addition made by AO by observing as under:- “4.1 With regard to disallowance of Rs.37,66,311 paid to M/s Alliance Engineering & Marketing Services, Proprietor Satish Chawla, it is seen that part of the commission pad is reflected in the return of income of Sri Satish Chawla and balance is reconciled as being difference due to system of accounting followed by ape and recipient. The fact of no response on late response in compliance of notice u/s. 133(6) cannot

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 4 be the basis of disallowance when the receipt is reflected in return of income of recipient. The payment of commission is made after deduction of income tax and charging of service tax. The commission was paid for sales promotion and is linked to sales effected by commission agent. The AO is directed to delete this addition.” The Revenue, being aggrieved, is in appeal before us. 6. Ld. DR before us submitted that the AO in his remand report has clearly pointed out that quantum of commission amount was not specified by assessee. Similarly, the balance-sheet profit and loss account and copies of income tax return of AEMS were not filed by the assessee during remand proceedings. He vehemently relied on the order of AO. On the other hand, Ld. AR before us filed paper book which is running from pages 1 to 128 and stated that all the details of the commission expense was duly filed before the AO. He drew our attention on pages 25 to 31 of the paper book where the details of the commission paid during the year to all the parties were placed. AEMS duly responded to the notice issued u/s 133(6) which is placed on pages 32 and 33 of the paper book along with receipt issued by the postal office. Ld. AR further submitted that these facts were not disputed by AO during remand proceedings. Ld. AR also drew our attention on the agreement between assessee and AEMS which is placed on pages 34 to 38 of the paper book. The invoices issued by the AEMS to the assessee on account of commission was placed on pages 39 to 76 of the paper book and all the invoices issued by AEMS contains the necessary details such as purchase order, No. of invoice, No. of quantity of materials, value of materials and the amount of commission for which the commission was paid by assessee. Ld. AR relied on the order of Ld. CIT(A). 7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, assessee has incurred commission expense in the name of six parties out of which one party during the course of assessment proceedings failed to file its reply u/s. 133(6) of the Act. Therefore, the amount of commission paid to such party AEMS was disallowed and added to the total income of assessee. However, we find that

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 5 the confirmation of the reply made by AEMS in response to the notice u/s. 133(6) of the Act was duly filed before Ld. CIT(A) at the time of appellate stage. It was also observed that the remand report was duly called for by Ld. CIT(A) from AO on the submission filed by the assessee. The AO has not pointed out any defect in the submission filed by the assessee but alleged that the quantum of commission was not furnished by AEMS. However, on perusal of record before us, we further find that reconciliation statement was duly filed between the amount of commission expense incurred by assessee vis-à-vis commission income booked by AEMS which is placed on page 119 of the paper book. It was also explained that AEMS is maintaining its accounts on the basis of cash system of accounting and reconciliation statement furnished by assessee, which reads as under:- ASSOCIATED TOOLINGS INDIA PVT. LTD. RECONCILIATION OF PAID / PAYABLE BETWEEN ASSOCAITED TOOLINGS & ALLAIANE ENGS. 7 MARKETING SERVIES FOR THE YEAER ENDING 31ST MARCH’ 2009 TOTAL IINVOICE VALUE 3766311.00 LESS: OUTSTANING INV.AMOUNT AS ON 31/03/09 1386300.00 2380011.00 ADD: PAYMENT MADE DURING THE YEAR BILLS OF A/Y 07-08 449260.00 INVOICE AMT. PAID DURING THE YEAR 2829271.00 LESS: CHEQUE ISSUED DATED 17/03/09 ACCOUNTED BY PAYEE DURING THE F/y 09-10 202542.00 2626729.00 ADD: EXCESS PAID DURING THE YEAR 702.00 AMOUNT AS PER PAYEES ACCOUNT 2627431.00 After considering the totality of the facts, we observe that all the necessary details as discussed above were filed by assessee in the course of assessment proceedings as well as remand proceedings but no defect of whatsoever has been pointed out by AO. It was also pertinent to note that PAN of AEMS was available before AO but no verification was done with the AO having jurisdiction over AEMS. Indeed, at the time of assessment

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 6 proceedings a notice was issued u/s. 133(6) of the Act to AEMS for verification of commission expense but no response whatsoever received by the AO till the date of completion of assessment. Accordingly, the AO made the addition of commission expense paid to AEMS without confronting from assessee that no reply was received by him in response to the notice issued u/s 133(6) of the Act to AEMS. In our considered view once AO has not received any reply from AEMS then this fact should have been brought to the notice of assessee before taking any action against the assessee. Thus we note that the principle of natural justice was not complied by AO. 7.1 On being confronted to Ld. DR for the details filed by assessee, he has not brought anything on record suggesting any defect in the submission filed by assessee. In this view of the matter, we have no alternate except to confirm the view taken by Ld. CIT(A). We hold accordingly. Hence, this ground of Revenue is dismissed.

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 7 proceedings vide letter dated 14.11.2011 which is placed on pages 77 of the paper book. In fact, assessee was under the obligation to deliver the goods to the parties on the specific dates but he filed to do so on many occasion. Therefore, the parties released the payments to assessee after deducting the late delivery charges. As such, no payment of whatsoever was made on account of late delivery charges as claimed by AO in his assessment order. In fact assessee failed to deliver the goods on time to the parties due to non- availability of raw materials. Thus, the delay occurred which resulted losses to the assessee in the form of late delivery charges deducted by the concerned parties. 10.1 The assessee in support of its claim also produced the copies of the purchase orders on sample basis wherein the date of delivery of the goods was specified which is placed on pages 80 to 91 of the paper book. Similarly, the assessee also produced the details of the payment made by the parties, wherein the amount of late delivery charges was deducted. The copy of sales made by the assessee and the amount of late delivery charges deducted by the parties are placed on pages 93 to 102 of the paper book. The AO during the course of remand proceedings did not ask for the party-wise details who have deducted late delivery charges from such payments. Therefore, the observation of AO in the remand report that party-wise details were not submitted is not tenable. Ld. CIT(A) after considering the submissions of assessee deleted the addition made by the AO by observing as under:- “4.2 Regarding late delivery charges of Rs.21,16,819/-, it was submitted that the same has to be debited in P & L account instead of reducing the sales because of sales Tax/VAT implications. If the appellant had not debited P & L account but reduced from sales, the same would not have been noticeable. But since the sales had been considered for Sales Tax/VAT purposes, the same cannot be reduced and late delivery charges have been debited. The AO is directed to delete this addition.” The Revenue, being aggrieved, is in appeal before us. 11. Ld. DR before us submitted that the party-wise details were not furnished by the assessee representing the deduction of late delivery charges.

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 8 Therefore, the matter should be restored back to the file of Assessing Officer for fresh adjudication. He vehemently relied on the order of AO. On the other hand, Ld. AR for the assessee submitted that the party-wise details were not called for by AO in remand procedure, therefore same was not furnished. Ld. AR also further submitted that it has never made any payment on account of late delivery charges rather the parties used to deduct the late delivery charges from their payments in the event of delay in delivery of goods. Ld. AR also submitted that it was never under any obligation to make the payment for late delivery charges to the parties. Thus, the observation of the AO that assessee failed to furnish the details of the payment made for late delivery charge is based on wrong assumption of facts. Ld. AR drew our attention on the dates of late delivery charges deducted by the parties above ₹10,000/- which is placed on pages 92 to 102 of the paper book. He relied on the order of Ld. CIT(A). 12. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, we find that AO made the addition of late delivery charges on the ground that necessary details were not furnished by assessee during assessment proceedings. However, from the submissions of assessee which is placed on page at 78 of the paper book. We note that the explanation for late delivery charges was duly furnished before AO vide letter dated 14.11.2011 but AO has not commented on such submission made by assessee. We also further note that the necessary details in connection with late delivery charges was duly furnished before Authorities Below as discussed above. But AO in remand proceedings has not pointed out any defect in the submission made by assessee. The AO in remand proceedings has taken the stand that party-wise detail of late delivery charges was not filed by assessee, without point out any defect on the submissions filed by assessee before him. As the AO has not pointed out any defect in the submission made by the assessee at the time of assessment proceedings as well as remand proceedings, we feel that addition has been made by AO on his surmise and conjecture. Further, we also find that

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 9 assessee has furnished details of invoice against which late delivery charges was deducted and which are placed on pages 92 to 102 of the paper book. In this regard, Ld. DR before us has not pointed out any defect in the finding of Ld. CIT(A). In this view of the matter, we do not find any reason to interfere in the order of Ld. CIT. We hold accordingly. The ground raised by Revenue is dismissed. 13. Next issue raise raised by Revenue in ground No.3 is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹8,500/- on account of capital loss. 14. The assessee in its profit and loss account has debited a sum of ₹8,500/- under the head “loss of assets” i.e. mobile which was classified under block of fixed asset. However, AO was of the view the loss of asset is on account of capital expenditure and it does not represent the revenue loss. Therefore, same was disallowed ad added to the total income of assessee. 15. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that mobile hand-set valued at ₹8,500/- was lost by the director of assessee-company. In this regard, a police complaint has been filed, therefore such loss was connected with the business of assessee and therefore, it was claimed as revenue expenditure. The Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:- “4.5 Regarding loss of assets of Rs.8,500/-, it is seen that the value is reduced from the fixed assets and no depreciation is claimed on it. The AO is directed to allow this loss as revenue loss.” The Revenue, being aggrieved, is in appeal before us. 16. Ld. DR before us submitted that loss of asset is capital loss, therefore, same cannot be allowed as deduction in its profit and loss account. He vehemently relied on the order of Ld. AO. On the other hand, Ld. AR submitted that the impugned loss is revenue in nature, therefore the deduction for the same should be allowed. He relied on the order of Ld. CIT(A).

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 10 17. We have heard the rival contentions of both the parties and perused the material available on record. There is no ambiguity that mobile hand set was lost by the director of assessee-company as evident from the copy of purchase bill as well as police complaint lodged by assessee which are placed on pages 103 and 104 of the paper book. The only issue requires our attention is whether asset pertaining to the block of asset can be written off in the profit and loss account in the event it is lost as discussed above. At this juncture, we find importance to reproduce the provision of Sec. 32 of the Act. Section 32(1) of the Act reads as follows:- “32.(1) in respect of depreciation of- (i) Building, machinery, plant or furniture, being tangible assets; (ii) Knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial right of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed – (i) … (ii) In the case of any block of assets, such percentage on the written down value thereof as maybe prescribed. (iii) In the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other that the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof ” From the above provision, we find that a block of asset can be reduced only in the event of sale, discarded demolished or destroy in the previous year. In the instant case, the deduction was claimed on account of loss of asset which is not appearing under the provision of Section 32(1)(iii) of the Act. Therefore, in our considered view, no deduction on account of such loss of asset can be claimed by the assessee. Once an asset becomes part of block of asset then such block of asset can be reduced only in the event as provided under Act. There is no provision under the Act to reduce the block of asset in the event of loss of asset. Therefore, the deduction claim by assessee on account of loss

ITA No. 1105/Kol/2016 A.Y. 2009-10 JCIT(OSD), Cir-1(1), Kol. Vs. M/s Associated Toolings India Pvt. Ltd. Page 11 of asset is not allowable under the scheme of Act. The assessee at the most can claim deduction in the form of depreciation on the asset lost by it @ specified under the Act. Thus, we direct the AO to disallow the claim of assessee on account of loss of asset but allow depreciation on the value of such asset @ specified under the Act. Hence, this ground of Revenue is partly allowed. AO is directed accordingly. 18. In the result, Revenue’s stand partly allowed. Order pronounced in the open court 14/02/2018 Sd/- Sd/- (�या$यक सद&य) (लेखा सद&य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 14/02/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-JCIT(OSD), Circle-1(1), P-7, Chowringhee Sq. R.No.20, 7th Fl, Kol-69 2. ��यथ�/Respondent-M/sAssociatedToolingsIndia Pvt. Ltd.Baltikuri,Kalitala,Howrah-711113 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।