TaxTMI 
TaxTMI 
2018 (4) TMI 881
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....o this issue are that the assessee imported items from Finland aggregating to approximately Rs. 37 crores in early 1997 and these were lying in the custody of Port Authorities and in bonded warehouse. The cost of import of such materials including duties and insurance is said to be to the tune of Rs. 37 crores. The assessee also stated that material worth Rs. 6 crores had been cleared and these materials were in the nature of stores and spares. Copies of the invoices, bills of entries, market value of the material and statement showing material cleared from the Port Authorities were furnished during the course of assessment proceedings. The A.O. in the assessment order has held as under:- "The assessee's reply has been considered. The goods had been imported from outside of India i.e. from Finland which was never brought in to the assessee's business premises/factory and utilized for the business of the assessee. In other words, plant and machinery was neither released from the Port Authorities nor installed and used for the business purpose and the materials had been simply dumped in the port and no part of utilized for business activity which had been carried out in the....
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....as stated that it was due to financial stringency that the custom duty could not be paid no documentary evidence regarding any such claim of dues for payment of custom duty nor any material to substantiate the claim of financial stringency has been brought on record. Further it is seen from the paper book that vide letter dt.17.07.2001,the assessee had written to the Commissioner of Customs (JNPT) stating that the title of these goods lying in the bonded ware house were relinquished. A basic question therefore arises that when the assessee has decided to relinquish the title of these goods for the F.Yr.2001-02 what is the rationale behind writing off such amounts in the F.Yr.2004-05 and whether the liability can be said to have crystallized during the F.Yr,2004-05 The assessee has not attempted to explain this anomaly. It is also seen that the assessee has only unilaterally intimated the custom authorities relinquishing the title to these goods. There is no order regarding this relinquishment by the custom authorities produced either before the AO or in appellate proceedings. The issue that emerges for consideration is as follows a) Whether the material concerned was actually s....
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....s of these containers covered by the above bill of entry are annexed herewith. As appellant has claimed that these goods are relinquished u/s 23 of the Customs Act it is worth considering the Provisions of section 23 of the Customs Act which reads as follows "Remission of duty on lost, destroyed or abandoned goods 1) Without prejudice to the provisions of section 13, where it is shown to the satisfaction of the (Assistant Commissioner of Customs or Deputy Commissioner of Customs) that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the (Assistant Commissioner of Customs or Deputy Commissioner of Customs) shall remit the duty on such goods. The owner of any imported goods may, at any time before an order for clearance of goods for home consumption under section 47 or air for permitting the deposit of goods in a warehouse tinder section 60 has boon made, relinquish his title to the goods and thereupon he shall not be liable to pay the duty thereon [Provided that the owner of any such imported goods shell not be allowed to relinquish his title to such goods regarding which an offence....
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....he claim of the appellant that these are stores and spares is contradictory 2) The goods are stated to be relinquished to the Customs authorities in F.Yr. 2001-02. On relinquishment title in the goods would pass to the Customs authorities and would not remain with the assessee 3.7 The write off in A Yr.2005-06 of goods over which assessee has no title is not in accordance with AS 28 and does not entitle the assessee to a claim u/s37of the l.T. Act. The action of the A.O is upheld This ground is, therefore, dismissed." Aggrieved, assessee preferred appeal before Tribunal. 5. Before us the learned counsel for the assessee argued that assessee has acquired spare parts & equipment which were lying at the stores to be cleared for home consumption since 1997. He explained that the expenditure incurred was in the course of carrying on business is not in dispute and all along in the past it was shown as business asset/advance and same has been accepted as shown in books. Books of account are never rejected. He stated the facts that turnover of assessee is Rs. 2000 crores and gross value of Plant & Machinery of the assessee in final accounts is Rs. 2634.18 crores. The detail of loss i....
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....ated 17-07-2001 addressed to the commissioner of Customs, Mumbai giving intimation regarding relinquishing of title to the goods paper machinery imported. The learned CIT DR stated that in lieu of proceedings initiated regarding for relinquishment of goods an order was passed to levy dues from the concerned party but no such order was produced by the assessee of custom authorities under section 68 of the Customs Act. It was argued by the learned CIT DR, the Act of the assessee is unilateral Act. He also stated that the claim of the assessee is not tenable for another reason that as per the invoice of Valmat, Finland the goods are described as paper making machinery whereas the assessee claim the same as stores and spares, which is totally contradictory. In view of these reasons, he argued that the claim of the assessee cannot be allowed. 9. We have heard rival contentions and gone through facts and circumstances of the case. We have gone through facts and noticed that imported materials amounting to Rs. 34crores (Annexure A) as lying under the custody of Port Authorities / Bonded Ware House was considered as permanently impaired in terms of Accounting Standard AS 28, because marke....
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....ost its market value, payment details in respect of import of market value of goods, statement showing materials cleared from, Port Authorities for use in the assessee's business and the materials relinquish thereof, bill of entries for goods cleared and use for the business etc. Stores & spares being essentially a standby item for any paper plant more particularly for a chain of manufacturing/processing of paper units when all such units are running continuously 365 days in a year. Thus, expenditure or the imported item whether used or not was for assessee's existing business. For allowance of a claim for deduction as business loss / expenditure, all that is necessary is that firstly, the money, i.e. capital, must have been utilized, secondly, it must have been expended in relation to business. It is admitted position in law, where there is no specific statutory provision for a deduction in the computation of business profits, it does not mean that the items goes without any deduction at all, but the question has to be resolved on the basis of commercial prudency having regard to the accepted commercial practice and trading principles and can be said in a case to arise out in ....
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....ess deduction. 8. The principles governing the allowance of deduction in respect of such expenditure are well-settled by now by a catena of decisions of the Supreme Court and the various High Courts. Such deductions are ordinarily claimed and allowed under section 37 of the Act which is a residuary section extending the allowance of deduction to items of business expenditure not covered by any of the preceding sections (sections 30 to 36) and section 80VV of the Act. The only conditions are that (i) it is not an expenditure (a) in the nature of capital expenditure or (b) personal expenses of the assessee, and (ii) it is laid out or expended wholly and exclusively for the purposes of the business or profession. 9. Various tests have been evolved by the Courts from time to time to decide whether an expenditure is incurred for the purposes of business. One of the tests often applied is whether it is incurred by the assessee in his character as a trader. To hold it to be an expenditure allowable as a deduction under section 37, it is not essential that it should be necessary, legally or otherwise, to incur the same or that it should directly and immediately benefit the business of ....
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....nd contention regarding payment for extra- commercial consideration is concerned, we find that it is wholly untenable in view of the clear finding of the Tribunal to the contrary. The Tribunal, on consideration of the totality of the facts and circumstances of the case, has come to a clear finding of fact that the payment was dictated by commercial expediency. This finding of fact having not been challenged on the ground of perversity or the like, it is not open to the revenue at this stage to contend that the payment of compensation by the assessee was not for business consideration but was a payment for extra-commercial consideration. On facts also, there does not appear to be anything wrong or unusual in the payment of the sum of Rs. 1,55,855 by way of compensation to the sole selling agents for loss of office which they had been holding for more than three decades and in claiming deduction of the same in computation of its total income. We, therefore, answer the first question also in the affirmative and in favour of the assessee." 12. Similarly, the Hon'ble Bombay High Court in the case of Zenith Steel Pipes Ltd. vs. CIT (1990) 186 ITR 594 (Bom.) and considered the issue of....
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....nment were almost junk and that it was not worthwhile to clear them by incurring further expenditure by way of duty, wharfage, demurrage, etc. It was a business decision which their clients took and the departmental authorities had no business to question the same unless there was even a suggestion that the goods were wrongly imported or that the Customs authorities would have otherwise confiscated them. Dr. Balasubramanian relied on the order of the Tribunal. In our opinion, the submissions on behalf of the assessee are well-founded. It is common ground that the consignment was not being traced for a sufficiently long time and it was traced only as a result of the efforts made by the assessee's agents, Messrs. Insimax Corporation, Bombay, to whom the assessee had to pay fees of Rs. 3,500. It is not on record as to how much time the agents took to trace the consignment. However, the assessee-company carries on its business and it is for the assessee to decide whether it was in its interest to clear the consignment or not as it would have amounted to waste of good money after bad money. It was a business decision which the departmental authorities could not have questioned wit....
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....al to the business. We allow the loss accordingly. This issue of assessee's appeal is allowed. 15. The next common issue in these cross-appeals is as regards to the order of CIT(A) in restricting the disallowance of write-off of an amount out of Rs. 1,47,51,335/- claimed by the assessee at Rs. 16,20,186/-. The Revenue is against deletion of disallowance of deduction of write-off of an amount of Rs. 1,31,34,610/- and assessee is in appeal for confirming the disallowance at Rs. 16,20,186/-. For this, Revenue has raised the following ground No.1 and assessee has raised following ground No.2 :- Ground No.1 raised by the Revenue:- "On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the assessee is entitled to deduction of write off of an amount of Rs. 1,31,34,610/-." Ground No.2 raised by the assessee:- "That the learned Commissioner of Income-tax (Appeals)-II, Nagpur has erred in not allowing loss suffered by the appellant company for irrecoverable loans and advances Rs. 60,20,186/- debited in the profit & loss account under the account head "Bad debts written off"." 16. Brief facts are that the Assessing Officer during the course of ass....
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....efore the learned CIT(A), who restricted the disallowance at Rs. 16,20,186/- and deleted the balance by observing in paragraph 4.2 as under :- "4.2 I have considered the facts of the case. It is seen that out of the amount of Rs. 1,47,51,335/- an amount of Rs. 16,20,186/- pertains to loans and advances, the balance amount of Rs. 1,31,34,610/- relates to paper debtors. These amounts relate to trade debtors. As per the provisions of section 36(2), to claim an amount as bad debt, the amount is required to be written off as a irrecoverable in the accounts of the previous year and should have been taken into account in computing the income of the assessee of that previous year or in any earlier previous year. It is clarified by the appellant that the amount relating to paper debtors has been included in the computation of income in earlier years. During the year under consideration these amounts have been written off in the books as irrecoverable. Therefore, I am of the considered view that the appellant is entitled to write off an amount of Rs. 1,31,34,610/- pertaining to trade debtors. A.O. is directed to allow this amount accordingly. As for the balance of Rs. 16,20,186/-, these pe....
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....he matter for assessment year 2004-05 in ITA No.261/Nag/2007. The CIT(A) has reproduced the directions of the Tribunal for assessment year 2004-05. When a query was put to learned CIT DR, he fairly conceded the position. 21. After hearing both the sides and going through the order of CIT(A), it is observed that CIT(A) has directed the Assessing Officer to dispose of the objections of the assessee in respect to this ground following Tribunal's directions for assessment year 2004-05. We do not find any infirmity in the directions of the CIT(A) and the same are confirmed. This issue of Revenue's appeal is dismissed. 22. The next issue in this appeal of Revenue is against the order of learned CIT(A) treating the sales tax incentive availed under package scheme of incentive of Government of Maharashtra as capital receipt not chargeable to tax instead of revenue receipt treated by the Assessing Officer. For this, the Revenue has raised the following ground No.3 :- "3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that sales tax incentive availed under the package scheme of incentive of Government of Maharashtra is capital receipt and is not ch....
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....of appellate order and held that sales tax incentives availed under the Package Scheme of Incentives of Govt. of Maharashtra is capital receipts not chargeable to tax at the hands of assessee. The Hon'ble Bombay High Court has held in the case of Reliance Industries Ltd. in Appeal No.1299/2009 vide judgment dated 15.04.2009 that incentive received under the Package Scheme of Incentives of Govt. of Maharashtra is capital receipt and not chargeable to tax. 9.1 Respectfully following the same I hold that sales tax incentives availed under the Package Scheme of Incentives of Govt. of Maharashtra is capital receipt and not chargeable to tax. The ground of appeal of assessee is allowed." Aggrieved, now Revenue is in second appeal before the Tribunal. 25. After hearing rival contentions and going through the facts and circumstances of the case, we find that this issue is covered by the Tribunal's decision in assessee's own case in ITA No.332/Nag/2014 for assessment year 2008-09 vide order dated 24th November, 2015 wherein further the Tribunal has followed the order of the Coordinate Bench in assessee's own case for assessment year 2006-07 in ITA No.106/Nag/2011, order dated 5th June, ....
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....ucing the same for the purpose of computing of book profit u/s 115JB of the Act. For this, Revenue has raised following ground No.5:- "5. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that sales tax incentive of Rs. 35,30,93,136/- is of the nature of capital receipt and the same has to be reduced for the purpose of determining the book profit u/s 115JB of the I.T. Act." 30. We find that this issue is also covered by the decision of the Tribunal in assessee's own case for assessment year 2004-05 in ITA No.226/Nag/2008, order dated 12th August, 2009. We find that CIT(A), following Tribunal's order, allowed the claim of the assessee by observing in paragraph 15.1 as under :- "15.1 I have considered the submissions made by counsel of the assessee and perused the assessment order. The A.O. has discussed the addition at para 20C of assessment order. The A.O. has held that sales tax incentive availed under the Package Scheme of Incentives of Govt. of Maharashtra is revenue receipt and same cannot be considered for reduction for the purpose of provisions of section 115JB of I.T. Act 1961. Similar issue was considered by Hon'ble CIT(A) in the ca....
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....nd is not recognized as per Rule 2 Part B of Schedule-6 of the Act. The CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, now the assessee is in appeal before us. 36. At the outset, learned counsel for the assessee stated that this issue covered in assessee's own case for assessment year 2006-07 in ITA No.93/Nag/2011 vide order dated 5th June, 2015 wherein the Tribunal vide Paragraph 15 and 16 has adjudicated this issue, whereby this issue is restored to the Assessing Officer to decide in terms of the directions of the Tribunal. The Tribunal, vide paragraph 15 & 16, has directed as under :- "15. We have heard both the sides at length and perused the material placed before us. At the outset, it is worth to mention that the AO as well as CIT(A) both have not mentioned the nature of the superannuation fund. On one hand, the AO has mentioned that the superannuation fund is related to erstwhile Built Graphics Paper Ltd., amalgamated with the assessee company, but, on the other hand, the assessee has submitted before us that the nature of superannuation fund was a contribution to LIC for the welfare of the employees in the form of superannuation fund. Therefore, th....