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TMI Blog2013 (11) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... a company which is mainly engaged in the business of marketing, selling and servicing office automation products like photocopy machines, FAX machines etc. It imports the said machines as well as accessories and spare parts thereof from its parent company namely Ricoh, Japan. The return of income for the year under consideration was filed by the assessee on 30-10-2002 declaring total income at "nil" after setting off the brought forward losses of the earlier years. In the P&L account filed along with the said return, usance interest of Rs. 47,59,895/- and interest paid to bank on BLC of Rs. 25,83,474/- was debited by the assessee. During the course of assessment proceedings, it was explained on behalf of the assessee before the A.O. that its holding company namely Ricoh, Japan allows a credit period of 180 days for the machines, spares and accessories from the date of bill of lading for which interest is charged on the basis of international libor. It was submitted that the said credit is allowed for a period of 180 days after which payment is made by the Citi Bank to Ricoh, Japan on behalf of the assessee. It was submitted that as per the arrangement between the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rico, Japan, no credit period was allowed and the interest was payable from the date of bill of lading for the period of 180 days by which the assessee was required to make the payment. It was submitted that as per the arrangement made by the assessee with Citi Bank, the later had agreed to make the payment to Rico, Japan after a period of 180 days which was treated as Buyers Line of Credit (BLC) and interest was payable by the assessee on the said credit given in US Dollar terms. As regards the objection of the A.O. about the piling of stock, it was submitted by the assessee that the same was required because of the lead-time in procuring the imports. It was also submitted that the assessee being in the business of servicing and maintenance of all the models, was required to maintain stock of consumables, spares and accessories of all the machines. It was also submitted that higher stock of the machines newly introduced in the market was required to be maintained by the assessee to meet the requirements of customer's needs. It was contended that the higher level of stock thus was maintained by the assessee due to peculiar nature of the products dealt in and such higher leve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were available on comparatively cheaper rates at rate of 6.79% to 6.9% than the interest payable on CC limit which was 13.50%. In view of this it is held that AO is not legally justified in making disallowance out of BLC interest. Disallowance made is hereby deleted". 7. The ld. D.R., after narrating the facts relevant to this issue, relied on the order of the A.O. in support of the Revenue's case. 8. The ld. counsel for the assessee, on the other hand, strongly relied on the impugned order of the ld. CIT(A) giving relief to the assessee on this issue stating that the same is a well discussed and well reasoned order. 9. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the machines, accessories and parts thereof were imported by the assessee company from its holding company Ricoh, Japan during the course of its normal business and there is no dispute about the same. As per the relevant bills of lading, the assessee was liable to pay interest to Ricoh, Japan for the delay in payment up to a period of 180 days. There is nothing brought on record by the A.O. to show that any credit period was actually allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's appeal. 10. In ground No. 2, the Revenue has challenged the action of the ld. CIT(A) in directing the A.O. to treat the bank interest as business income instead of income from other sources as considered by the A.O. 11. During the year under consideration, the assessee company had earned interest income on various fixed deposits kept with the Bank against performance bank guarantee issued by the Bank. Since the said investment in fixed deposits with Bank was made for the purpose of its business, the interest earned thereon was declared by the assessee company as business income. According to the A.O., none of the main objects of the assessee company as per its Memorandum of Article of Association was that of making investment in bank deposits for the purpose of earning interest income. He therefore held that interest income earned by the assessee on bank deposits was not its business income but the same was chargeable to tax in the hands of the assessee company under the head "income from other sources". 12. On appeal, the ld. CIT(A) accepted the stand of the assessee that interest income earned on bank deposits constituted its business income as fixed deposits were kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 16. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. representatives of both the sides, the issue involved in this ground relating to assessee's claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in ground No. 1 of Revenue's appeal. Since the said issue involved in ground No. 1 of Revenue's appeal has already been decided by us in favour of the assessee upholding the impugned order of the ld. CIT(A) deleting the disallowance made by the A.O. on account of usance interest and BLC interest, we allow the consequential relief due to the assessee on account of foreign exchange fluctuation loss relating to the said interest and dismiss ground No. 3 of the revenue's appeal. 17. In ground No. 4, the Revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs. 5,78,215/- made by the A.O. on account of employees contribution to gratuity fund by invoking the provisions of section 43-B of the Act. 18. The employees contribution towards gratuity fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r details to show that the said miscellaneous income constituted its business income. The A.O. therefore did not accept the claim of the assessee that the miscellaneous income constituted its "business income" and brought the same to tax in the hands of the assessee under the head "income from other sources". 22. During the course of appellate proceedings before the ld. CIT(A), the assessee furnished all the relevant details in respect of miscellaneous income as under:- Branches Amount (Rs) Trade-in recoveries Dealers Recovery charges Scrap Sales Miscellaneous Income Mumbai 1,813.00 - - 1,813.00 - Bhopal 16,991.00 - 16.991.00 - - Ahmedabad 83,086.96 29,316.96 - 31,270.00 22,500 Cochin 13,756.00 13,756.00 - - - Calcutta 29,584.00 - 29,584.00 - - Chandigarh 74,247,07 - 74,247,07 - - Jaipur 41,841.00 - 41,841.00 - - Lucknow 73,850.00 - 73,850.00 - - Hydrabad 99,029.00 - 99,029.00 - - Delhi 17,245.00 - 17,245.00 - - Gandhinagar 43,502.09 - - 43,502.09 - Noida 10,506.50 - - 10,506.50 - Bangalore 1,85,395.00 - 1,85,395.00 - - Chennai 1,19,650.00 - 1,19,650.00 - - Pune 1,00,529.00 - 1,00,529.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en claimed as write off in the books of Head Office, which has not been allowed by the AO and is being contested separately as a part of Ground No. 8. Both these cancel each other and have no revenue / tax implications." Keeping in view the above details furnished by the assessee, the ld. CIT(A) held that the entire miscellaneous income received by the assessee was having intricate connection with its business and the same therefore constituted its "business income" and not "income from other sources". 23. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the relevant details furnished by the assessee before the ld. CIT(A) were sufficient to show that the entire miscellaneous income earned during the year under consideration was having direct nexus with its business activity and the same was very much forming part of its business income as rightly found by the ld. CIT(A). Even the ld. D.R., at the time of hearing before us, has not been able to raise any argument to dispute this position clearly arising from the details furnished by the assessee and has simply relied on the order of the A.O. in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecoverable. (d) Imprest A/c (Dr. bl.) Rs. 1,23,610/-. The amount pertains to ex-employees of the Appellant who have already left the company and the outstanding amount is irrecoverable now. Details are: Kamlesh Prasad Rs. 101,110/-. Sanjeev Srivastava Rs. 22,500/-. (e) Suppliers Debit Balance Rs. 25,000/-. The amount is outstanding since long time and is irrecoverable." On the basis of the above details, it was claimed by the assessee that the advances given in the normal course of business had become bad or irrecoverable during the year under consideration and the same therefore should be allowed u/s 37(1) if not u/s 36(1)(vii) of the Act. 27. After considering the submissions made by the assessee as well as the material available on record, the ld. CIT(A) decided this issue vide para No. 10.4 of his impugned order as under:- "10.4 I have considered the submission of the appellant and found the same to be not acceptable. The Appellant has sought to write off earnest money deposits of Rs. 7.95 lacs. These deposits are mainly with government agencies. The appellant is duty bound to explain as to why the deposits could not be recovered. The amounts cannot be written off merely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same before the ld. CIT(A). Even before us, no evidence whatsoever has been brought on record by the assessee in support of its case on this issue and this being so, we find it difficult to accept even the alternative stand of the assessee that sundry advances written off to the extent of Rs. 17,94,318/- should be considered as loss incidental to the business which is deductible while computing the business income. We therefore uphold the impugned order of the ld. CIT(A) on this issue and dismiss ground No. 6 of Revenue's appeal as well as ground No. 3 of assessee's C.O. 29. In ground No. 7, the Revenue has challenged the action of the ld. CIT(A) in deleting the addition of Rs. 38,26,000/- made by the A.O. on account of interest receivable on advance paid by the assessee to M/s CEAT Tyres Ltd. 30. During the course of assessment proceedings, it was noticed by the A.O. that the assessee company on the one hand had incurred huge interest expenditure on the borrowed funds and on the other hand no interest was charged on the substantial advance given to M/s CEAT Tyres Ltd. He also noted in this context that the assessee was entitled to charge interest @ 2% as per the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself being doubtful, interest on such advance could not be said to have accrued to the assessee in the year under consideration. 33. We have considered the rival submissions and also perused the relevant material available on record. It is well settled that Income Tax is a levy on income and Income Tax Act takes into account points of time at which the liability to tax is attracted viz. the accrual of income or its receipt. If the right to receive a particular income is vested in the assessee as per the agreement or understanding, the same can be said to have accrued to the assessee in the relevant year unless such right is waived by him as a result of revised agreement or understanding. If there is such waiver in the relevant year, the income so waived could not be accrued to the assessee in that year and accordingly the same could not be assessed to tax in his hands in that year. As rightly submitted by the ld. D.R., nothing has been brought on record in the present case either before the authorities below or even before us to show that interest chargeable by it on the advance to M/s CEAT Tyres Ltd. as per the agreement was actually waived in the year under consideration. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of usance interest and BLC interest is similar to the one involved in ground No. 1 of the Revenue's appeal for A.Y. 2002-03 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2002-03, we delete the disallowance made by the A.O. on account of usance interest and BLC interest and dismiss the ground raised by the Revenue. 39. As regards ground No. 2 of the Revenue's appeal, it is observed that the issue raised therein relating to the head of income under which bank interest is chargeable to tax is also similar to the one involved in ground No. 2 of Revenue's appeal for A.Y. 2002-03 which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2002-03 on similar issue, we uphold the impugned order of the ld. CIT(A) treating the bank interest as assessee's business income and dismiss ground No. 2 of Revenue's appeal. 40. As regards ground No. 3, it is observed that the issue involved therein relating to the taxability of interest receivable by the assessee on advance appearing in the name of M/s CEAT Tyres Ltd. is also similar to the one invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Money Deposits (EMD) paid while biding for the tenders. Since the amount of the said EMD was not assessed as income of the assessee in the earlier years, the deduction claimed by the assessee on account of bad debts was disallowed by the A.O. holding that the conditions stipulated in section 36(1)(vii) r.w.s. 37(2) of the Act were not satisfied. 48. Before the ld. CIT(A), an alternative claim was made by the assessee by stating that the loss as a result of EMD becoming irrecoverable being a business loss should be allowed u/s 37(1) of the Act. The ld. CIT(A), however, did not allow this alternative claim of the assessee holding that there was no evidence brought on record to show that the loss as a result of EMD becoming irrecoverable was actually incurred during the year under consideration. Even before us, no such evidence has been produced by the assessee to show that the said loss was actually incurred during the year under consideration and in the absence of the same, we find no justifiable reason to interfere with the impugned order of the ld. CIT(A) on this issue. Ground No. 1 of assessee's C.O. is accordingly dismissed. 49. In the result, appeals of the Revenue for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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