RUZBEH DAVER,MUMBAI vs. JCIT RG 17(3), MUMBAI

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ITA 465/MUM/2013Status: DisposedITAT Mumbai09 December 2015AY 2008-094 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty was levied in the course of business, even if caused by an employee's wrongful act. Since the amount was not received by the assessee, it should not be declined as expenditure or added to income.

What were the facts?

The assessee claimed an expenditure of Rs. 10,00,000/- which was a penalty levied by Tata Motors Ltd. for loss/pilferage caused by the assessee's employee at Tata Motors' premises. The Assessing Officer and CIT(A) disallowed this expenditure, treating it as a personal liability of the employee.

What were the issues?

Whether a penalty levied by a client on an assessee due to an employee's misconduct at the client's premises is an allowable business expenditure.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 143(2),Section 142(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: S/SHRI B.R.BASKARAN & AMARJIT SINGH

For Appellant: Shri K.Gopal
For Respondent: Shri S.K.Mishra
Hearing: 09.09.2015Pronounced: 09.12.2015

आदेश / O R D E R PER AMARJIT SINGH, JM:

1.

This is an appeal directed against the order dated 23.11.2012 passed by the learned Commissioner of Income Tax (Appeals)-16, Mumbai [hereinafter referred to as the learned “CIT(A)”] relevant to the assessment year 2008-09.

2.

The appellant has raised the following issue:-

1.

On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition of Rs.10,00,000/- being deterrent charges / penalty levied by Tata Motors Ltd. for loss/pilferage in their premises. 3. The assessee filed return of income for the assessment year 2008-09 on 30.09.2009 declaring total income of Rs.64,27,135/-. The return of income was Assessment Year: 2008-09 processed u/s. 143(1) of the Income Tax Act, 1961( in short “the Act”). The case was selected for scrutiny assessment and statutory notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee and after giving proper and full opportunity of being heard, learned Assessing Officer has declined the expenditure to the tune of Rs.10,00,000/- claimed by the assessee against the M/s. Tata Motors Ltd. on account of penalty recovery of damages incurred and declined the said penalty charges deducted by the M/s. Tata Motors Ltd. payable to the assessee by holding that it was a personal liability of the employee and therefore no penalty amount should be added towards the expenditure of the assessee. Assessee filed an appeal before learned CIT(A) who uphold the same. Feeling aggrieved the assessee filed the present appeal before us.

3.

We have heard the arguments advanced by the learned representative of the parties and have gone through the record carefully. The sole point is that whether an amount to the tune of Rs.10,00,000/- payable to the assessee company by M/s. Tata Motors Ltd. as penalty for loss/pilferage in their premises which has not been paid is allowable as expenditure of the assessee or not. The assessee’s explanation is hereby reproduced below:

“We submit that during the year 2007-08, the employee of the assessee posted at the premise of M/s.Tata Motors Ltd. was involved in the theft of goods of M/s. Tata Motors Ltd. on account of which there was loss and damage to the property of Tata Motors Ltd. The copy of the letter written by the assessee to M/s.Tata Motors Ltd. dated 07.01.2008 is enclosed. Thereafter M/s. Tate Motors Ltd has levied a penalty of Rs. 10 lacs towards the recovery of damage incurred. The debit note has already been submitted vide our submission dated 25. 11.2010. We submit that the debit note from reputed company like M/s. Tata Motors Ltd is sufficient. If however, still further evidence is needed we would request you to write to M/s. Tata Motors Ltd for verification of particular matter.”

The Assessing Officer arrived at this conclusion that the employee of the assessee was working with M/s. Tata Motors Ltd and among of them anybody committed the theft of the article of the amount of Rs.10,00,000/- but the assessee company has wrongly claimed the business expenditure of theft amount of Rs.10,00,000/- which was the personal liability of the employee concerned. Learned CIT(A) has uphold the finding of the Assessing Officer. It is not in dispute that the assessee was providing the services of the employees to M/s. Tata Motors Ltd. It is also not in dispute that M/s. Tata Motors Ltd levied the penalty of Rs.10,00,000/- towards damages incurred by the employee of assessee company. The said transaction has been confirmed by the M/s. Tata Motors Ltd in view of the debit note dated 23.04.2008 lies at page no. 17 of the paper book. It is up to the employer to take the action against those employees who committed the theft/damage to recover any amount of penalty damage in accordance with law. The services of the employee was provided to M/s. Tata Motors Ltd in the course of business and if any loss occurred during the course of business even after due to wrongful act of the employee the same cannot be declined in the interest of the justice. Anyhow, the amount to the tune of Rs.10,00,000/- has not been received by the assessee company in view of the debit noted dated 23.04.2008 lies at page no.17 of the paper book. In the said circumstance it is not required to be declined and added to the income of the assessee. In view of the said circumstances we are of the view that the learned CIT(A) has wrongly upheld the order of Assessing Officer. Therefore, the order of learned CIT(A) dated 23.11.2012 is hereby ordered to be set aside on this point and the Assessing Officer is directed to delete the impugned disallowance.

Assessment Year: 2008-09 4. In the result, the appeal of the assessee is hereby allowed accordingly.

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