2015 (7) TMI 728 - AT - Income Tax

Addition of expenses as penal in nature - forfeiture of the Bank Guarantee - CIT(A) deleted the addition - Held that - In the present case, it appears that the AO himself in his remand report accepted on the basis of evidence furnished by the assessee that the forfeiture of the Bank Guarantee was a sort of compensation for nonfulfillment/ shortfall of certain conditions in export obligations. Therefore, it was related to the business activities of the assessee and was revenue in nature. In that view of the matter, we do not see any infirmity in the order of the ld. CIT(A) on this issue. - Decided in favour of assessee. Addition for provision for House tax, an unascertained liability - CIT(A) deleted the addition - Held that - Issue is covered in favour of the assessee vide orders for the assessment years 2008-09, 2007-08 & 2006-07 2012 (4) TMI 570 - ITAT DELHI and 2010 (5) TMI 794 - ITAT DELHI wherein held The dispute on property tax is between NDMC and STC. There is no dispute between the NDMC and the assessee. Thus, the liability of the assessee is towards STC and not to NDMC. As raising of demand, by STC and acceptance of liability amounting to ₹ 11,40,958/- by the assessee has not been disputed by the revenue. We are of the considered opinion that the impugned amount has accrued during the year under consideration and such amount was allowable as a deduction in the year under consideration. In this view of the matter, we do not find any infirmity in the order of Ld. CIT(A) on this issue and confirm the same. - Decided against revenue. Addition being amount deducted by the assessee from the sales account of Jaipur Branch - CIT(A) deleted the addition - Held that - In the present case, the claim of the assessee is that the adjustment had been made on account of fluctuation in foreign exchange which was related to the export sales. However, neither the AO nor the ld. CIT(A) had mentioned in their respective order that the impugned amount relates to the foreign exchange fluctuation. In our opinion this issue requires a fresh examination at the level of the AO. We, therefore, set aside the impugned order and remand this limited issue to the file of the AO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of penal expenses by AO.
2. Deletion of addition of provision for House Tax.
3. Deletion of addition of amount deducted from sales account.

Issue 1: Deletion of addition of penal expenses by AO:
The department raised grounds against the deletion of an addition of Rs. 3,79,958 made by the AO, arguing that the expenses were penal in nature. The assessee contended that the forfeiture of a Bank Guarantee was a revenue expenditure due to short utilization of quotas for shipment of goods. The CIT(A) upheld the assessee's claim, stating that the forfeiture was compensation for non-fulfillment of export obligations. The Tribunal agreed, noting that the forfeiture was related to business activities, hence revenue in nature, and upheld the CIT(A)'s decision.

Issue 2: Deletion of addition of provision for House Tax:
The department disputed the deletion of an addition of Rs. 28,87,000 made by the AO for provision of House Tax. The assessee cited previous ITAT orders supporting their position. The Tribunal found that the facts were similar to previous cases where the provision was allowed as a deduction, thus upholding the CIT(A)'s decision to delete the addition.

Issue 3: Deletion of addition of amount deducted from sales account:
The AO added Rs. 1,75,95,258 for deduction from the sales account of the Jaipur Branch, questioning the validity of the adjustment. The assessee explained the adjustment was due to fluctuating bullion prices and was to ensure correct profit recognition. The CIT(A) deleted the addition, highlighting missed credits in the sales adjustment. The Tribunal remanded the issue to the AO for fresh examination as the foreign exchange fluctuation aspect was not adequately addressed in the previous orders.

In conclusion, the Tribunal partly allowed the department's appeal for statistical purposes, dismissed the assessee's Cross Objection, and remanded one issue to the AO for further review.