The Commissioner Of Income Tax-12 v. M/S.chemwood Corporation

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL NO.2267 OF 2009 The Commissioner of Income Tax-12 ..Appellant. Vs. M/s.Chemwood Corporation ..Respondent. .... Mr. Suresh Kumar i/b Mr. A.S. Shivsharan for the Appellant.Mr. J.D. Mistry with Mr. Atul K. Jasani for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD & J.P.DEVADHAR, JJ. P.C. : 21[st] January, 2010. 1.The following questions of law have been formulated in the appeal by the revenue against the order of the Income Tax Appellate Tribunal dated 26[th] November, 2008. “1)Whether on the facts and in the circumstances of the case and in law the Hon ble ITAT was right in upholding the’order of the CIT(A) deleting the addition of Rs.10,60,000/- on account of guarantee forfeiture; 2)Whether on the facts and in the circumstances of the case and in law such allowance of expenditures/loss can be said to have been incurred for the purpose of the business of the assessee; 3)Whether on the facts and in the circumstances of the case and in law the Hon ble Tribunal was right in upholding the’order of CIT(A) reducing the addition of Rs.32,17,523/- made u/s 41 of the Income Tax Act to Rs.7,29,494/-;” 2.The dispute in the present case pertains to Assessment Year 2001-02. The first and second questions can be taken up together. The assessee had placed a deposit with Bank Indosuez and had obtained a guarantee in favour of Madhya Pradesh Iron and Steel Company. The Bank Guarantee, as the CIT(A) noted, pertained to the cost of opening a letter of credit against payment for the purchase of a certain quantity of scrap under a contract which was entered into between Madhya Pradesh Iron and Steel Company and a seller in New York. The guarantee was invoked and encashed since the transaction did not go through. The CIT(A) found that the assessee had entered into a bonafide business transaction and that the assessing officer had erred in coming to the conclusion that the guarantee was a personal guarantee. The seller having failed to perform the contract, the buyer in India invoked the guarantee. The loss suffered by the assessee was hence held to be allowable against its business income. The assessee had also placed a deposit of Rs.5.60 lacs with East African Traders as its counterpart in Singapore was to arrange a shipment by opening a letter of credit for the supply of materials. The transaction could not materialize because of a change in government policy and the party in question did not return the deposit placed for effecting shipment. The Tribunal has arrived at a pure finding of fact that no addition could be sustained on the forfeiture of the deposit of the assessee as the losses suffered were trading losses incurred during the course of the carrying on of the business. The finding of fact is based on the record and does not raise any substantial question of law. 3.Insofar as the third question is concerned, the assessee had an outstanding liability towards the bank. The bank agreed to a one time settlement which was paid. The CIT(A) entered a finding of fact that the remission on account of the arrears of interest for the period upto 30[th ]September, 1996 was Rs.7,29,494/- as against an addition of Rs.32,17,523/- made by the assessing officer. The application of Section 41(1) was not in dispute and the only question which arose related to the question of remission. The view of the CIT(A) has been affirmed by the Tribunal which has also held that after making adjustments towards the payment of the loan and interest on account of a one time settlement, the balance worked out to Rs.7,29,494/- which was liable to be included as the income of the assessee under Section 41(1). Here again, this finding is based on the ledger account and does not raise any substantial question of law. The appeal shall accordingly stand dismissed. (Dr. D.Y.Chandrachud, J.) (J.P. Devadhar, J.)