2020 (3) TMI 1229 - AT - Income Tax

Business loss or not - Payment of additional Custom Duty after the department of Customs found that goods were under-valued - the duty was paid in the names of other parties but the same related to the assessee only. - CIT(Appeals) not allowing to the appellant the deduction of custom duty being the business loss - HELD THAT - Assessee has paid certain duty pursuant to action carried out by DRI. The matter of duty was finalized by Hon ble Settlement Commission and the assessee made the payment as determined. The payment so made amounted to ₹ 197.60 Lacs out of which deduction to the extent of ₹ 104.47 Lacs has already been allowed to the assessee. The basis of disallowance is the fact that the payment is not in assessee s account. However, as rightly pointed out by Ld. AR, the said payment was made by the assessee himself out of his own funds and substantial payment challans were in the name of assessee s proprietorship concern namely M/s M.B.Sales Corporation . The other entities denied their liability and despite legal action, the stated amount could not be recovered from them and the amount eventually became irrecoverable for the assessee. Therefore, the said loss, in our considered opinion, was incurred in the course of business being carried out by the assessee and non-payment of the duty would have resulted into substantial losses for the assessee and damaged assessee s reputation in the market. This being the case, the said loss would be allowable to the assessee as a business loss out of commercial expediency. The ratio laid down in the cited judicial pronouncements clearly support the case of the assessee. Therefore, we hold that the said expenditure would be an allowable expenditure.- Decided in favour of assessee. Disallowing the set-off of carried forward of losses pertaining to AY 2005-06 - HELD THAT - The said issue would stand remitted back to the file of Ld. AO for re-adjudication in view of our decision for AY 2006-07. The Ld. AO is directed to verify assessee s claim and allow the set-off of losses as per law. The ground stand allowed for statistical purposes. The appeal stands partly allowed.

Summary

Issues:
1. Disallowance of custom duty payment for AY 2006-07
2. Interest disallowance and set-off of carried forward losses for AY 2008-09

Issue 1: Disallowance of custom duty payment for AY 2006-07:

The appeal pertains to the disallowance of a custom duty payment amounting to ?93.12 Lacs for AY 2006-07. The assessee, a resident individual dealing in chemicals and pig-hair, incurred this loss due to additional import duty paid under instructions from the Department of Revenue Intelligence. The duty was related to the assessee and other parties, with the disallowance of ?93.12 Lacs being the subject matter of appeal. The Assessing Officer disallowed this amount despite the payment challans being in the assessee's name and the funds being withdrawn from its bank account. The Commissioner of Income Tax (Appeals) also confirmed this disallowance, leading to the appeal before the tribunal.

The assessee argued that the payment was made out of commercial expediency and for the preservation of its business, citing relevant legal provisions and judicial precedents. The assessee emphasized that the payment was necessary to avoid adverse impacts on its business and reputation, as well as efforts made to recover the amount from other entities. The tribunal, after considering the facts and submissions, concluded that the loss was allowable as a business loss incurred out of commercial expediency. The tribunal relied on legal principles and held in favor of the assessee, allowing the appeal for AY 2006-07.

Issue 2: Interest disallowance and set-off of carried forward losses for AY 2008-09:

In AY 2008-09, the assessee faced interest disallowance of ?16.44 Lacs related to the duty payment disallowed in AY 2006-07. The tribunal, having allowed the appeal for AY 2006-07 and considering the facts to be similar, deleted the consequential disallowance for AY 2008-09. Additionally, the assessee contested the non-allowance of set-off of carried forward losses of ?5.07 Lacs from AY 2005-06. The tribunal directed the Assessing Officer to re-examine this issue in line with the decision for AY 2006-07. Consequently, the tribunal partly allowed the appeal for AY 2008-09.

In conclusion, the tribunal allowed the appeal for AY 2006-07 and partly allowed the appeal for AY 2008-09, providing relief to the assessee on the issues of custom duty payment disallowance and set-off of carried forward losses.

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