2013 (9) TMI 557 - AT - Income Tax

Adjustment of accrued demurrage charges - assessee contended that since the amount is not credited to profit and loss account, it is not taxable - Held that - If a receipt has accrued but not shown in the books then it does not mean that such accrual of money is not to be considered for income. When a person gets a right to claim debt from others then such debt stand accrued - Decided against the assessee. The auditor has pointed out that due to not making such entry of demurrage charges in profit and loss account, then loans and advances are understated by Rs.5,00,080/- and liability overstated by Rs.2,70,726/-. It means that assessee has to pay Rs.2,70,726/- to those parties from whom demurrage was to charged. Hence to this extent, the assessee can recover through journel entry without writing off debt unless demurrage is waived by Board of Directors and allowed by revenue u/s 37 of the I.T. Act. CIT (A) was justified in confirming the addition of Rs.7,70,606/- - Decided against the assessee. Payment of Privilege fees - Nature of expenditure - exclusive privilege for wholesale trade of Indian made Foreign Liquor Beer - Held that - The issue is whether the fee paid is for the purpose of business or not. If it is in conteravention of provisions of Excise Act, the Excise Authority will take appropriate action, but if the same is paid for business purpose, then the payment cannot be held as in genuine or held as not allowable in view of provisions of section 37 (1) of the Act. It is further seen that even there is no contravention in paying the privilege fee as the fee is paid under section 24 of the Excise and the provisions of section 28, 29 are not applicable as they are on separate aspect - held as business expenditure - Decided in favour of assessee.

Issues Involved:
1. Addition of Rs.7,70,806/- on account of demurrage charges.
2. Deletion of addition of Rs.15 Crores made by the A.O. by disallowing the payment of privilege fee.
3. Deletion of addition of Rs.7,61,177/- made on account of depositing the PF/ESI payment beyond the prescribed time.

Detailed Analysis:

1. Addition of Rs.7,70,806/- on Account of Demurrage Charges:
The assessee's grievance is that the CIT (A) erred in confirming the addition of Rs.7,70,806/- on account of demurrage charges, which were not credited in the Profit and Loss account. The facts reveal that the RSBCL levies demurrage charges on slow-moving stocks. The assessee sold unapproved brands, resulting in demurrage charges of Rs.7,70,806/- not being credited to the Profit & Loss account. Consequently, the AO added this sum to the total income.

The CIT (A) confirmed the addition, stating that the appellant had charged the demurrage but failed to provide evidence of the manufacturers/suppliers against whom the charges were levied. The CIT (A) noted that the demurrage charges were rightfully levied and constituted income in the hands of the appellant. The Income Tax Act considers accrued income, whether credited in the books or not.

The Tribunal upheld the CIT (A)'s decision, stating that in the mercantile system of accounting, the accrual of income must be recognized even if not recorded in the books. The Tribunal also noted that if income is waived after accrual, it must satisfy the requirements of section 37 or be claimed as a bad debt under section 36(1)(vii).

2. Deletion of Addition of Rs.15 Crores Made by the A.O. by Disallowing the Payment of Privilege Fee:
The revenue's grievance is that the CIT (A) erred in deleting the addition of Rs.15 Crores made by the AO, disallowing the payment of privilege fee as a capital expenditure. The CIT (A) followed the Tribunal's earlier decision, which held that the privilege fee paid by the assessee is allowable as business expenditure under section 37(1) of the Act. The fee was paid for the right to manufacture and vend liquor, a business expenditure.

The Tribunal confirmed this view, stating that the privilege fee is akin to a license fee necessary for starting the business. The Tribunal dismissed the revenue's objections, noting that the fee's payment was compulsory for business operations and not merely an application of income.

3. Deletion of Addition of Rs.7,61,177/- Made on Account of Depositing the PF/ESI Payment Beyond the Prescribed Time:
The revenue's second grievance is the deletion of Rs.7,61,177/- added due to late PF/ESI payments. The Tribunal referenced its decision in a similar case, stating that no disallowance is warranted if contributions are paid before the due date of filing the return. The Tribunal cited the Hon'ble Delhi High Court's ruling in CIT Vs. AIMIL Ltd., which supports this view.

The Tribunal upheld the CIT (A)'s decision to delete the addition, confirming that the contributions were indeed paid before the due date of filing the return.

Conclusion:
The Tribunal dismissed both the assessee's and the revenue's appeals, confirming the CIT (A)'s decisions on all issues. The order was pronounced in open court on 21.10.2011.

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