Itta/353/2012 Of Commissioner Of Income Tax v. M/S. Best India Tobacco Suppliers Private Limited

THE HON’BLE SRI JUSTICE GODA RAGHURAMAND THE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.Nos.353 & 355 of 2012 COMMON ORDER(Per the Hon’ble Sri Justice Goda Raghuram): Revenue preferred these appeals under Section 260-A of theIncome Tax Act, 1961. The Income Tax Appellate Tribunal,Visakhapatnam Bench (Tribunal) by its common order, dated26.12.2011, in two appeals preferred by the RevenueI.T.A.No.221/Vizag/2000 and I.T.A.No.185/Vizag/2001, rejected theappeals insofar as the issue presented for consideration in theseappeals is concerned. The respondent-assessee in I.T.T.A.No.353 of 2012 is acompany and in I.T.T.A.No.355 of 2012 is a firm. Both assessees arein the business of tobacco exports. In November, 1991, the assesseesentered into a contract with a company by name M/s.SNTA located inAlgeria for exporting tobacco. While the assessee which is a companyexported 1000 MT of tobacco, the partnership firm exported 1500 MTof tobacco, in January, 1994 and the proceeds realized in June, 1995.The exported goods were however found infested with pests and thefumigation process carried on by the assessees did not facilitatereduction in the weight of the tobacco. Consequently, M/s.SNTA,Algeria demanded compensation from the assessees. After a processof arbitration, on 20.06.1995 an agreement was entered into whereinthe assessees agreed to compensate M/s.SNTA for the loss, byexporting 7.6% of the exported quantity free of cost. The value of thequantity to be compensated was estimated at Rs.34,20,000/- in respectof the company and at Rs.41,04,000/- in respect of the partnershipfirm. Since both the assessees were following the mercantile systemof accounting, they accounted for the said amount as expenditure intheir respective books of accounts under the head “Loss Due to ExportClaim”. In the respective orders of Assessment, the Assessing Officerdisallowed the losses claimed. Aggrieved, the assessees preferredappeals, which were allowed by the Commissioner of Income Tax(Appeals), Vijayawada. The Appellate Authority held that since it wasnot in dispute that the assessees had been exporters of dried tobacco;followed the mercantile system of accounting and the dispute wassettled by the agreement dated 20.06.1995, wherein an accrual ofliability was crystallized and quantified, the liability, even if postponed,does not postpone the accrual of liability and such estimated liabilitycould be claimed, the assessees were entitled to claim the same asloss occasioned on account of the liability. Consequently, theAppellate Authority remanded the appeals directing the AssessingOfficer to allow the claim of the assessees on the basis that the liabilityaccrued during the previous years relevant to the Assessment Year1996-97, for a sum of Rs.41,04,000/-, with the observation thatwhenever such free supply is actually exported, the resultant effect,whether positive or negative, could be worked out in that year. Rejecting the appeals by the Revenue against the orders of theCommissioner of Income Tax (Appeals), the Tribunal concurred byholding that the Appellate Authority committed no error in the analysisof the documentary evidence; applied the relevant and settledprinciples of accountancy; and that the liability of the assesseeshaving been crystallized during the Assessment Year underconsideration, they were entitled to claim the loss during the said year. In the circumstances, we find no question of law let alone asubstantial question of law falling for consideration in these appealspreferred by the Revenue under Section 260-A of the Income Tax Act,1961. The appeals are without merit and are accordingly dismissed atthe stage of admission, after hearing Sri B. Narasimha Sarma, learned counsel for the appellants – IncomeTax. JUSTICE GODA RAGHURAM Date: 03.10.2012va JUSTICE M.S.RAMACHANDRA RAO THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO In the circumstances, we find no question of law let alone asubstantial question of law falling for consideration in these appealspreferred by the Revenue under Section 260-A of the Income Tax Act,1961. The appeals are without merit and are accordingly dismissed atthe stage of admission, after hearing Sri B. Narasimha Sarma, learned counsel for the appellants – IncomeTax. JUSTICE GODA RAGHURAM Date: 03.10.2012va JUSTICE M.S.RAMACHANDRA RAO THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON’BLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.Nos.353 & 355 of 2012 (order of the Bench delivered by the Hon’ble Sri Justice Goda Raghuram) va Date: 03.10.2012