9911796707
TMI Blog1986 (3) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 3. The second ground of appeal is that the Commissioner (Appeals) erred in not allowing deduction of Rs. 9,03,665 being liability of the Cotton Corporation of India Ltd. for liquidated damages. The appeal by the assessee is that the liability had been arisen during the year and even if the assessee did not accept the liability, deduction claimed was allowable. 4. It is seen that the assessee has filed an additional ground of appeal by a letter dated 29-1-1985. It is clarified before us by the assessee's learned counsel that the additional ground was taken in order to incorporate the correct amount of the loss claimed which should be at Rs. 22,62,475 in place of Rs. 9,03,665. 5. From the assessment order it is seen that the assessee claimed deduction of Rs. 9,03,665 being the difference of debit notes and credit notes issued by the Cotton Corporation of India Ltd. for imported cotton the delivery of which was not taken by the company. The ITO noted that the liability has not been accepted by the assessee and the same has not been provided for in the accounts also and, therefore, the claim was not entertainable. 6. The assessee took up the matter before the commissioner (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contracts made with it. It is also submitted that clause (4) of the contract provides that if delivery is not taken, the assessee would have to compensate for the damages, if any, incurred by the Corporation and that according to clause (7) of the said contract the assessee would indemnify the Corporation against all actions, claims, proceedings, damages and losses, etc., in respect of or in connection with or in relation to or arising out of any matter under this agreement. It is, therefore, urged that the authorities below failed to consider the terms of the contracts and the obligations of the assessee in case delivery of the goods was not taken on the basis of the delivery orders. It is also contended that the commissioner (Appeals) erred in stating that no evidence in the form of any agreement or otherwise has been shown to establish that the liability was accepted during the previous year. It is also submitted that the mere fact that the liability was in dispute the claim of the assessee cannot be dismissed on that ground, particularly when the issue is sub justice in the Court of law. In short, it is urged that the claim of the assessee may be allowed. 8. The Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 ITR 212 (Guj.). According to the learned counsel for the assessee, the liability on account of damages was quantified and accordingly, the same was an allowable liability on the date as soon as the Corporation sold the goods to the other parties. He refers to the other decisions in CIT v. Sugar Dealers [1975] 100 ITR 424 (All.), Motilal Padmpat Sugar Mills v. CIT [1977] 106 ITR 988 (All.), CIT v. Swadeshi Mining Mfg. Co. Ltd. [1978] 112 ITR 276 (Cal.), CIT v. Orient supply Syndicate [1982] 134 ITR 12 (Cal.) and CIT v. Centry Enka Ltd. [1981] 130 ITR 267 (Cal.). It is urged, therefore, that in the circumstances the claim of the assessee was wrongly disallowed by the authorities below. 10. We have heard both the sides and have perused the orders of the authorities below along with the papers placed before us for our consideration. As mentioned earlier the ITO disallowed the claim of the assessee as the assessee did not accept the liability. The Commissioner (Appeals) sustained the rejection. Before us it is submitted that the liability to the Cotton Corporation of India Ltd. was embedded in the contract itself. It is seen that the ITO and the Commissioner (Appeals) have looked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be treated as party allowed for the purpose of statistics. Per Shri S. K. Jain, Judicial Member - I do not fully concur with my learned brother and, therefore, express my view separately. 2. Two grounds out of three taken by the assessee-company in this appeal against the order of the Commissioner (Appeals) arising out of assessment for the assessment year 1979-80 are simple inasmuch as they are not seriously contested. 3. First of them is regarding disallowance of gratuity liability of Rs. 26,09,102 determined on actuarial valuation without any contribution towards an approved gratuity fund. According to the tax authorities below, the said claim was hit by section 40A (7); whereas the stand of the assessee has been that it is allowable under section 37(1). Such plea as raised by the assessee has been turned down by the Hon'ble Calcutta High court in the case of New Swadeshi Mills of Ahmedabad Ltd. The ground of appeal, therefore, fails and I concur with my learned brother on this point. 4. The second of these two points is regarding computation of relief under section 80J. Law on this point has already been sets at rest by the judgment of the Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34,72,890.46 ------------ Out of the said claim of Rs. 34,72,890 made in those suits, it is said by the assessee that the loss and interest due thereon in the sum of Rs. 22,62,475 pertained to the accounting period relevant to the assessment year 1979-80. According to the learned counsel for the assessee, claim for the trading loss should, therefore, have been made by the assessee for Rs. 22,62,475 but by mistake the claim was made for Rs. 9,03,665 only. He has, therefore, filed an application for permission to take an additional ground of appeal that the loss of Rs. 22,62,475 should have been allowed by the Commissioner (Appeals). 6. It is contended by the learned counsel for the assessee that the liability is ascertained liability. According to him, the assessee is contesting in all the four civil suits before the Bombay High Court only for the sake of making delay in discharging the liability, but nonetheless the liability stands and, therefore, it should have been allowed by the tax authorities below. He in support placed reliance upon the following judgments of the Hon'ble Supreme Court and the High Courts : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractual liability can be said to arise until it is ascertained in prescient either by admission of the parties to the dispute or is adjudicated in appropriate proceedings. There are several judgments of the Hon'ble Supreme Court and the High Courts on this point. To begin with, reference may be made to the judgments of the Hon'ble Supreme Court in CIT v. Swadeshi Cotton Flour Mills (P.) Ltd. [1964] 53 ITR 134. In that case, the assessee paid bonus to its employees for the calendar year 1947 in terms of an award made in 1949 under the Industrial Disputes Act, 1947. The Hon'ble Supreme Court held that since the claim of bonus was settled by an award to the Industrial Tribunal only in 1949, the liability could be attributed to only that year. In the case of CIT v. Roberts McLean Co. Ltd. [1978] 111 ITR 489, the Hon'ble Calcutta High Court held that since the dispute was settled by arbitration by award in March 1960, the liability arose only in March 1960, though pertained to the earlier period. In the same terms is the judgment of the Hon'ble Calcutta High Court in the case of CIT v. Soorajmull Nagarmull [1981] 129 ITR 169. In that case, the assessee followed mercantile system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dates on which the Cotton Corporation of India Ltd. sold the consignment to other parties. It is needless to mention that the power of remand should be exercised judiciously and not capriciously. It should not be exercised when all the basic materials necessary for the disposal of the matter are already on record - United Commercial Bank v. CIT [1982] 137 ITR 434 (Cal.). Enquiry as to various terms of contract between the assessee on the one had and the Cotton Corporation of India Ltd. on the other and the dates on which the Cotton Corporation of India Ltd. sold the consignments to other parties would not serve any purpose since that material has no bearing on the issue involved in this case. Further it is pertinent to note that the assessee has denied the contract in toto in the written statement filed before the Hon'ble High Court. According to the assessee, there was no privacy of contract between it and the Cotton Corporation of India Ltd. 12. I, therefore, express my inability, with respect, to agree with my learned brother. In my judgment, the assessee is not entitled to the claim of deduction of the liability. I, therefore, propose the appeal to be dismissed on all grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of Calcutta Co. Ltd. would be normally applied and the assessee would be entitled to the deduction on account of loss, damage, etc. Also, if the assessee had considered itself tentatively liable, made a provision for the liability but had at the same time proposed to content the liability on various grounds, there would have been no difficulty in accepting the assessee's claim for deduction, it being a settled law that the mere fact that the assessee is contesting the liability does not matter in the case of a person following the mercantile system of accountancy; what matters is the legal view of the liability. 4. The case herein is materially different. The assessee has not considered itself liable at all. It has made no provision for the liability in its books of this year or in any of the following years till the date of the hearing before me. The liability under the contracts is vehemently contested as is evident from the copy of the written statement filed by the assessee before the Hon'ble Bombay High Court in which the suits filed by the Cotton Corporation of India Ltd. are pending. Some of the objections taken by the assessee are fundamental a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and nail. So far as the case laws on the issue are concerned, they are all with regard to the statutory liabilities. For the present, I am in agreement with the assessee's counsel that that fact by itself would not mean that the said principle cannot be applied in the case of a contractual obligation. However, it cannot, perhaps, be disputed that that would only mean that the question as regards the contractual liability is wide open and will have to be decided on the basis of first principles. 7. Assuming that the fact that the assessee has not yet made any entry about the alleged liability in its books cannot be attributed to a mistake and yet it will not stand in the way of its claiming deduction provided the alleged liability is in present and not de future or contingent. I am inclined to agree with the counsel for the assessee that the ITO has to decide whether the liability has or has not accrued in terms of the contracts as for matters coming up before him, the ITO has exclusive jurisdiction as held by the Supreme Court in the case of Chhatrasinhji Kesarisinhji Thakore v. CIT [1966] 59 ITR 562. No doubt, the job is difficult inasmuch as the ITO does not have the necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
