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TMI Blog2011 (9) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... ise duty collected on sales. Cenvat Credit available will be adjusted against the excise duty payable in the next year. It will not be liable to tax as it does not constitute income in the hands of the assessee. Miscellaneous adjustments viz liquidated damages on account of delayed supply made to Government, amount received less from the sales made to the public sector undertakings - Held that:- In a case when some deductions are made either on account of liquidated damages or otherwise, the deductions so made will be allowable as business expenditure. In any case the amount which has not been paid by the purchaser cannot be treated as income. Traveling expense incurred on foreign travel expenses - Held that:- In the absence of evidence to prove that the expenditure was incurred wholly and exclusively for the purpose of the business, the dis-allowance made by the AO in respect of foreign travel has to be upheld - Appeal is partly allowed. - IT APPEAL NO. 3489 (DELHI) OF 2010 - - - Dated:- 23-9-2011 - RAJPAL YADAV, K.D. RANJAN, JJ. R.S. Negi for the Appellant. Sidharth Jain for the Respondent. ORDER K.D. Rajan, Accountant Member This appeal by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is calculated on annual basis. The firm's total turnover was to Government undertakings and goods were supplied on tender basis. It was also submitted that the stock given to the bankers was to avail credit facilities and the same could not be made as basis to calculate trading results of the year. Sale to Government undertakings and manufacturing activities were subject to Central Excise verification. No adverse findings were given by the Central Excise. Under these circumstances no adverse view can be taken against the assessee. The learned CIT(A) after considering the contentions made by the assessee noted that there could be monthly variations in the profits arising to the businessmen and therefore, the AO was not justified to recast the P L a/cs by picking out certain months in which the assessee had incurred losses. The AO had obtained stock statement from the bank and based on those figures had drawn up an adverse inference against the assessee. The learned CIT(A) further submitted that unless the stock was pledged which was under the custody of the bank, the statement of stock given to the bank was more considered as an exercise to get maximum credit facility rather than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee had availed Cenvat credit of Rs. 75,29,635 as per RG-23(ii) accounts. However, the assessee has credited only Rs. 70,45,042 as per P L a/c, The AO added the difference of Rs. 4,84,593 to the total income of the assessee. 7. On appeal it was submitted by the assessee that the assessee had to maintain manufacturing records, according to the Excise Rules. The assessee has paid excise duty on purchase of raw material which is debited in the records. In the same fashion he had collected excise duty on sales, which were credited. The difference of these two amounts was deposited with the Excise Department. It was also submitted that sometimes sales are less; in that case excise amount paid on purchase of raw material is excess, which stands towards Department the credit thereof is claimed in the next financial year. It was also submitted that the excise records were reconciled and audited by the Central Excise Department and statutory auditors of the assessee. The balance of Cenvat credit being current assets cannot be treated part of the trading account. The Central Excise duty which was paid on raw material purchased earlier by the assessee would be utilized in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Modvat Scheme the assessee got credit for excise duty already paid on the raw materials purchased by them and utilized in the manufacture of excisable goods. When they manufactured the goods and sold them, the proportionate part of Cenvat credit was set off against the excise duty liability. The assessee had in valuing their stock uniformly adopted the net method viz., valuing raw materials at purchased price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw material and work-in-progress at the end of the year. The AO took the view that Modvat credit should be treated as an income or advantage in the nature of income and added the Modvat credit. Tribunal held that Modvat credit could not be added back to the income of the assessee. On appeal, Hon'ble Bombay High Court affirmed the decision of the Tribunal. On further appeal, Hon'ble Supreme Court affirming the decision of the Hon'ble High Court held that (i) merely because Modvat credit was an irreversible credit available to manufacturers upon purchase of duty paid raw material, that would not amount to income, which was liable to be taxed under the Act; income was not generated to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that liquidated damages were part of the normal course of business and, therefore, the same were allowable as business expenditure. As regards disallowance of Rs. 3,45,546 the learned CIT(A) noted that the amount represented the less recovery of sale proceeds, which was a normal and routine thing in case of contract business. The short recoveries are allowable as expenses. The learned CIT(A) accordingly allowed the claim of the assessee. 11. Before us the learned senior Departmental Representative supported the order of the AO. On the other hand, the learned Authorised Representative of the assessee submitted that liquidated damages and other adjustment relates to short recoveries on account of delayed supply of material. Therefore, liquidated damages and less recovery of sale proceeds is an allowable expense. 12. We have heard both the parties and gone through the material available, on record. There is no dispute about the fact that the amount of Rs. 1,38,066 represented the liquidated damages on account of delayed supply made to Government undertakings. Another amount of Rs. 3,45,546 represents the amount received less from the sales made to the public sector u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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