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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri N.V. Vasudevan & Shri M. Balaganesh
Appearances by: Shri Subash Agarwal, Advocate, for the assessee Shri S.M. Sarfarazut Tauheed, JCIT, Sr. D.R., for the Department Date of concluding the hearing : December 12, 2016 Date of pronouncing the order : December 09, 2016
O R D E R Per Shri M. Balaganesh, A.M.: This appeal by the assessee is arising out of the order of ld. Commissioner of Income Tax (Appeals)-XII, Kolkata vide Appeal No. 778/XII/11(3)/09-10 dated 15.03.2013. Assessment was framed by the Income Tax Officer, Ward-11(3), Kolkata under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for assessment year 2007-08 vide his order dated 24.12.2009.
The first issue to be decided in this appeal is as to whether the ld. CIT(Appeal) is justified in upholding the addition of Rs.58,57,062/- made by the Assessing Officer under section 41(1) of the Act in the facts and circumstances of the case.
Brief facts of this issue are that the assessee is a Clearing and Forwarding Agent earning income from commission and interest in the ./2013 Assessment Year: 2007-2008 Page 2 of 6 form of service charges. The assessee had shown a sum of Rs.58,57,062/- under sundry creditors, which is included in the total sundry creditors of Rs.93,70,611/-. When the sundry creditors were subjected to verification by the Assessing Officer, during the course of assessment proceedings, the assessee submitted that this sum of Rs.58,57,062/- represents the amount received from M/s. Shaw Wallace & Co. Limited in respect of fine paid by the assessee to Customs Department on behalf of M/s. Shaw Wallace & Co. Limited in the capacity of Clearing & Forwarding Agent. It was also replied that this sum was continued to be shown as liability because the assessee had agitated the levy of fine imposed by the Customs Authorities before the Competent Authority and depending upon the outcome of the said appeal, it would be decided whether this sum is required to be paid back to M/s. Shaw Wallace & Co. Limited based on the amount of refund that could be received from the Customs Department. The assessee has also shown the payment of fine to the Customs Authorities under the head “Current Assets” as ‘deposit’. The Assessing Officer made cross verification of the balance amount shown by the assessee that M/s. Shaw Wallace & Co. Limited had issued notice under section 133(6) of the Act, which replied that there is no amount receivable from the assessee as on 31.03.2007. Accordingly, the Assessing Officer proceeded to treat the said liability to have been ceased in view of the provisions of section 41(1) of the Act and added the same to the total income of the assessee. This action of the Assessing Officer was upheld by the ld. CIT(Appeals). Aggrieved by the order of the ld. CIT(Appeals), the assessee is in appeal before the Tribunal on the following ground:- “For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the addition of Rs.58,57,062/- made by the A.O. on account of sundry creditor by wrongly invoking the provisions of section 41(1) of the Act”.
The ld. A.R. agreed that the assessee had not claimed any deduction towards creating this liability in the earlier years. It had simply paid the fine to the Customs Authorities on behalf of M/s. Shaw Wallace & Co. Limited and had reflected the same under “current assets” in its balance- ./2013 Assessment Year: 2007-2008 Page 3 of 6 sheet. The assessee had also raised a Debit Note on M/s. Shaw Wallace & Co. Limited and received the said sum from M/s. Shaw Wallace & Co. Limited and showed the same as other sundry creditors. The assessee had preferred an appeal before the Competent Authority against the levy of fine imposed by the Customs Authorities and in case, if the assessee succeeds in the same fine paid to the Customs Authorities would be refunded to the assessee, which, in turn, had to be refunded back to M/s. Shaw Wallace & Co. Limited and accordingly, the assessee is justified in showing it under sundry creditors as on 31.03.2007. The Ld. A.R. also made an alternative argument that in the assessment years 2008-09, 2009-10 and 2010-11, the assessee had written back this liability to income and offered the same on its own. He also made an argument that this very action does not automatically conclude that the liability ceased to exist as on 31.03.2007 relevant to assessment year 2007-08 (i.e. year under appeal). In response to this, the ld. D.R. vehemently relied on the order of ld. CIT(Appeals). The ld. A.R. for the assessee has placed reliance on the following decisions in support of this argument:- (i) CIT –vs.- Sugauli Sugar Works (P) Limited [236 ITR 518 (SC)]; (ii) Goodricke Group Limited –vs.- CIT [338 ITR 116 (Cal.)]; (iii) CIT –vs.- Chougule & Co. (P) Limited [189 ITR 473 (Bom.)]; (iv) Steel and General Mills Co. Limited –vs.-CIT[96 ITR 438 (Del]; (v) CIT –vs.- Ancherry Pauoo Kakku [1986] 160 ITR 88 (Ker.); (vi) Ambica Mills Limited –vs.- CIT [54 ITR 167 (Guj.)]; (vii) CIT –vs.- Silver Cotton Mills Co. Limited [254 ITR 728 (Guj.).
The ld. A.R. also filed additional evidence together with the prayer for receipt of additional evidence showing the evidence for writing back of this liability to income in assessment years 2008-09 to 2010-11 in part. He fairly submitted that these papers were not submitted before the lower authorities.
We have heard the arguments of both the sides and perused the material available on record. We find that the assessee is a C &F Agent ./2013 Assessment Year: 2007-2008 Page 4 of 6 and in that capacity imported certain amount of goods on behalf of M/s. Shaw Wallace & Co. Limited in the year 1995 and in that said work due to certain defects, a fine of Rs.55,00,000/- was imposed by the Customs Authorities. The assessee had deposited the said fine on behalf of M/s. Shaw Wallace & Co. Limited, which was shown on the assets side in its balance-sheet. The said fine was later reimbursed by M/s. Shaw Wallace & Co. Limited, which was shown separately under the head “sundry creditors” by the assessee in view of the pending litigation before the Competent Authority on the validity of levy of fine. We find from the records that the assessee had not claimed any deduction in this regard for payment of fine in its return of income. Hence, at the threshold, the provisions of section 41(1) of the Act cannot be invoked and we hold that the lower authorities had grossly erred in this regard by invoking the said section. In view of this finding, we do not deem it fit to adjudicate the above additional evidences filed by the assessee and the subsequent write back of the said liability to income in subsequent years by the assessee and the case laws relied upon by the assessee. Accordingly, Ground No. 1 raised by the assessee is allowed.
The last issue to be decided in this appeal is as to whether the ld. CIT(Appeals) is justified in reducing the disallowance of expenditure to Rs.2,00,000/- in the facts and circumstances of the case.
Brief facts of this issue are that the Assessing Officer, during the course of assessment proceedings, observed as under:- “Total Receipts Interest Rs.1,05,772/- Commission Rs.3,27,746/- Long-term Capital Loss Rs. 34,508/- Short Term Capital Loss Rs.1,48,754/- Speculation Loss Rs. 7,628/- Rs.6,24,408/-
Total Expenses claimed Rent, rates and taxes Rs.2,970/- Employees expenditure Rs.3,44,738/- Repair and maintenance Rs.2,08,581/- Depreciation Rs.1,12,338/- ./2013 Assessment Year: 2007-2008 Page 5 of 6 Other expenses Rs.13,88,210/- Rs.20,56,837/-
Expenses relating to Long Term Capital Loss (2056837 /624408 x 34508)= Rs.1,13,671/-
Expenses relating to Short Term Capital Loss (2056837 /624408 x 148754) = Rs.4,90,005/-
Expenses relating to share dealing loss (2056837/624408 x 7628) = Rs.25,127/-.
Thus the total expenditure of Rs.6,28,803/- (113671 + 490005 + 25127) is considered as not related to business income and disallowed in course of computation of business income/loss”. The ld. CIT(Appeals) brought down this disallowance to Rs.2,00,000/-. Being aggrieved, the assessee is in appeal before us.
The ld. A.R. argued that the Assessing Officer had not even indicated under which section of the Act he had contemplated to disallow this expenditure of Rs.6,28,803/-, which was later reduced to Rs.2,00,000/- by the ld. CIT(Appeals). From the perusal of the assessment order, it could be presumed that the Assessing Officer was only contemplating to disallow the said expenditure by invoking the provisions of section 14A of the Act with regard to Long-term Capital Loss, Short-term Capital Loss and Share Dealing Loss claimed by the assessee. The Ld. A.R. prayed that 1% of the dividend income could be disallowed under section 14A of the Act for the year under appeal as the provisions of Rule 8D could not be made applicable. He also agreed for disallowance of Rs.25,127/- being the expenses relating to speculation loss to be disallowed under section 14A. In response, the ld. D.R. relied on the orders of the ld. CIT(Appeals).
We have heard the rival submissions and perused the relevant material available on record. The facts stated hereinabove remained undisputed and hence, the same are not reiterated for the sake of brevity. We find from the record that the disallowance of expenditure has been made without mentioning any section and from the spirit of the language ./2013 Assessment Year: 2007-2008 Page 6 of 6 used by the Assessing Officer, it could be safely presumed that he was only contemplating to disallow the expenditure under section 14A of the Act. We find that the Hon’ble Calcutta High Court in the case of CIT –vs.- M/s. R.R. Sen & Brothers Pvt. Ltd. in G.A. No. 3019 of 2012 in ITAT No. 243 of 2012 dated 04.01.2013 has held that in respect of disallowances under section 14A for the assessment years prior to assessment year 2008-09, the sum has to be restricted to 1% of exempt income. We direct the Assessing Officer accordingly to disallow 1% of exempt income. We also direct the Assessing Officer to disallow a sum of Rs.25,127/- as the expenses directly relatable to speculation loss, which has been fairly conceded by the ld. A.R. We direct the Assessing Officer accordingly. The Ground No. 2 raised by the assessee is partly allowed.
Ground No. 3 is general in nature and does not require any adjudication.