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2003 (1) TMI 269
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....Mysore Lamp Works, Bangalore. The assessee entered into a contract dated 1-4-1987 with the said company, in terms of which M/s. Mysore Lamp Works undertook to supply specified goods as per the requirements of the assessee-company. In its turn, the assessee entered into certain agreements with its stockists and dealers. Those agreements, allegedly, contained in a circular letter dated 25-3-1987, a copy of which may be seen at page-227 of the assessee's paper-book Vol. I, are identically worded, except for the difference in the target fixed by the assessee for each stockist/dealer. As the main controversy in this appeal revolves round the so-called agreements with the stockists, the said circular letter is reproduced hereunder. The letter to one of the stockists, M/s. Vijaya Agencies, Karimnagar, filed before us, reads as under- " Date: 25-3-1987 To M/s. Sri Vijaya Agencies, ....
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....p; Yours faithfully, Signature of the Agent and Stamp Sd/- For Sri Vijaya Agencies K. Ashok Kumar Sd/- Managing Director Manager Signature of the Sales Executive M/s. Coromandel Market (India) Pvt. Ltd. It may be observed that the above letter is also signed by M/s. Vijaya Agencies, which according to the assessee, indicates its agreement to the target fixed by the assessee. Admittedly, the supplier, M/s. Mysore Lamp Works could not make the supplies to the assessee, and so, the assessee incurred certain losses. The case of the assessee is that because of the breach ....
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....r section 154 for assessment year 1998-99 passed on 25-9-2002 also mentioned that assessee offered Income of Rs. 1,20,16,334 which includes Rs. 1,15,27,120 towards loss/profit Expenditure, Damage against Award at Item No. 1 Page 1 of the Paper Book II. Hence having taxed the Income of Rs. 1,15,27,120 in the assessment year 1996-97, it cannot be included second time during assessment year 1998-99 or it is to be excluded from Rs. 4 crores Award brought to Income-tax during assessment year 1998-99." 6. The learned Departmental Representative admitted that the amount of Rs. 1,15,27,120 was brought to tax in the assessment year 1996-97 and conceded the account. The CIT(A) has not discussed this issue, though a specific ground was taken before him, in Form No. 35 filed before him. In the circumstances, the assessee has to be allowed a deduction of Rs. 1,15,27,120, as otherwise, it would amount to double taxation of the same amount. We accordingly allow this ground of the assessee, and delete the said amount of Rs. 1,15,27,120. 7. Now turning to Ground No.3 taken by the assessee, the Assessing Officer observed that the amount of Rs. 3,11,18,213 claimed as liability towards its st....
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.... by it, and the general letters received from the dealers without quantifying any damages, he took the view that there was no crystallised liability, as no damages have actually been claimed, or as the damages paid were actually much less than the claim of Rs. 3, 11,18,213. So, he upheld the action of the Assessing Officer in respect of the disallowance of this claim. 9. Before us, the learned counsel for the assessee pleaded that the above remarks of the CIT(A) had no bearing on the issue. He invited our attention to some of the letters received by the assessee, copies of which may be seen at pages 75/1 to 75/14 of appellant's paper-book Vol. 2. To indicate the flavour of these letters, we reproduce the letter dated 2-1-1988 received from M/s. Vijaya Agencies, Nandyal filed at page75/1, which reads as under- Date: 2-1-1988 ....
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....p; Vijay Agencies 1/128, Main Bazar, Nandyal-518 501 To Coromandel Marketing India, 3-6-155, Liberty Road, Himayath Nagar, Hyderabad. Respected Sir, Till now, we have extended our cooperation to you uninterruptedly, but you are not extending your co-operation to us. We are unable to understand the reason for this. Due to lack of stocks, we are not in a position to move in the market. To ensure sales as per the target fixed by you in sales of Bulbs, we have in reduced schemes in the local market with lot of expenditure. Instead of sending us the Bulbs as per the Target fixed by you, you have not at all sent any Bulbs to us so far. As the time is over, the shopkeepers are demanding for Scheme. Hence, we are put to loss due to this scheme. You will have to shoulder responsibility for such loss. As you are not sending the Bulbs in time, it is showing adverse impact on our other businesses. So, we request you to respond in time and extend your ....
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....; For Vijay Agencies Sd/-- Proprietor." It may be observed that the paper-book does not contain the details of loss, allegedly given, as stated in the above letter. The so-called 'order' to the assessee does not quantify the losses. 10. The above letters are from M/s. Vijay Agencies, Nandyal. There are letters from another party of similar name, viz., Sri Vijaya....
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....bsp; Yours faithfully, for Sri Vijaya Agencies. Sd/- &n....
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....bsp; for Sri Vijaya Agencies Sd/- Manager..." 11. There are also letters from M/s. Krupa Agencies, Chagalamarri (Kurnool Distt.) filed in the paper-book. Letter dated 6-7-1988 from the said concern, filed at page 75/2 of the paper-book reads as under-- "Krupa Agencies &....
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....nbsp; Sd/- Proprietor..." Subsequent follow-up letter of the said concern, dated 7-7-1988 copy of which is filed at page-75/6 reads as under- ".......... Date: 7-7-1988 To Coromandel Marketing (India), Liberty Road, Himayathnagar, Hyderabad. Greetings to the above Addressee. It is more than six months, since you have sent the stocks. If you do not send the stocks, we will not be in a position to recover our dues from the market. Moreover there is every likelihood of the Market even forgetting name of our Bulb....
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....n to us. We lost our reputation in the market. We shall inform you about the loss sustained by you. We request you to consider the same and reimburse the said amount of loss to us. for Krupa Agencies, Sd/--..." Besides the above letters, the learned counsel for the assessee has also invited our attention to the internal memos given by the salesmen of the assessee. A copy of such internal memo, filed at page 75/16 of the paperbook, reads as under-- "Respected Sir, I have visited the following towns on my market work that the situation is very embrasing both with the dealers and the authorised agents. Please find the town-wise, particularly major towns which I visited in the ....
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....imed that the claims made by the Stockists on the assessee-company were considered by the Arbitrator. Specifically the claim of M/s. Krupa Agencies was examined by the Arbitrator. The relevant witness was examined as CW-6. Our attention is invited to the relevant portion of the award of the Arbitrator, which reads as under- "C.W. 6 is a retail businessman of Chagalamarri, Kurnool District, Andhra Pradesh. He says that he is dealing with CMI for a long time. He has been doing business since 1977 when it was known as Globe Marketing Agencies. Earlier he used to do business only in soaps and later in Bulbs after it became CMI. Exs. C-1012 to 1018 are the documents produced by him in this behalf. He deposes that he was the Agent of CMI which was supplying bulbs and tubes. He identifies the signature of Sales Executive of CMI on these documents and says that he knew CWs. 4 and 5 and also one Bagogi Sales Executive of CMI. Earlier he was doing business under the name of Pratap General Stores and now in the name of Krupa Agencies. He speaks about the defectives and also complained about non-supply of stocks and also irregular supply of bulbs. He also deposed that he was capable of sell....
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....sued credit notes to the parties and such credit notes are enclosed in the paper-book at pages 237 to 261, of the first paper-book. The credit notes are stated to have been issued at 15% of the value of the short-supply. The value of the actual supplies are reduced from the value of the targets fixed for various items, and on the difference, the credit to be given is worked out at 15% thereof. This method is claimed to have been uniformly followed in respect of all the stockists and that is how the liability of Rs. 3,11,18,213 has been arrived it, and the same is claimed as deduction. The amount of Rs. 3,11,18,213 was credited to the accounts of the concerned stockists in the year of account relevant to the assessment year 1998-99. As per the written submissions filed by the learned counsel for the assessee, the amounts were actually paid as under-- Accounting year 1997-98 Rs. 31,48,048 Accounting year 1998-99 Rs. 15,39,676 Accounting year 1999-00 Rs. 40,61,835 Accounting year 2000-01 Rs. 34,64,850 Accounting year 2001-02&nbs....
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....gue hope that the supplies would be made. The learned DR pleaded that only liquidated damages or damages that can be quantified with some definiteness can be allowed as a deduction under section 37 of the Income-tax Act, even when the system of accounting followed by the assessee is mercantile system, as in the present case. In support of this proposition, he relied upon the decision of the Apex Court in Bharat Earth Movers Ltd.'s case and the decision of the Hon'ble Kerala High Court in N. Sundareswaran v. CIT [1997] 226 ITR 142. It is also claimed that simply because the assessee could claim damages from M/s. Mysore Lamp Works, in pursuance of its agreement with them, it does not follow that there is any liability to pay similar damages, on the part of the assessee to its stockists or the dealers. The agreement between the assessee and the stockists and M/s. Mysore Lamp Works is not a tripartite agreement, and the claim of the stockists on the assessee does not stand on the same footing as the claim of the assessee on M/s. Mysore Lamp Works. 14. In the rejoinder, the learned counsel for the assessee reiterated his stand that the expenditure of Rs. 3,11,18,213 was incurred out ....
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.... 1998-99, what was paid was only an amount of Rs. 31,48,048. There is a huge gap of almost a decade between the receipt of letters from the stockists, which took place in 1988, and the so-called sending of credit notes in 1997. There is an yawning gap of almost a decade between the unquantified claims of stockists and alleged entertainment of those claims by way of sending credit notes, which, as already mentioned, is not established. 16. The evidence tendered by the assessee, in the form of letters received by it from stockists/dealers complaining against short supply of goods by the assessee to them, which resulted in losses in their businesses, or in the form of internal memos received by the assessee from its salesmen, or the proceedings before the Arbitrator, only indicates the damage in reputation that the assessee has suffered in the eyes of its stockists and dealers and in market, and none of them establish any liability on the part of the assessee towards its stockists/dealers. Consideration of the claims of the stockists on the assessee by the arbitrator does not take the case of the assessee any far. What was under the consideration of the arbitrator was the claim of ....