Indian Synthetic Rubber Pvt Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that expenses in relation to import of rubber process oil, loss on price fluctuation, freight and retention charges are incurred in the course of carrying on business and hence allowable as deduction u/s 37(1) of the Income Tax Act.
Facts- This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-22 [hereinafter referred to CIT (Appeals)] New Delhi, dated 19.03.2019 for assessment year 2014-15 in sustaining the disallowance of Rs.1,38,97,606/- on account of freight and exchange variation etc. on import and export of consignment of Rubber Process Oil by treating it as fine and penalty.
Conclusion- We observe that the rubber process oil imported by the assessee was freely importable as on the date of placing the order and also as on the date of the cargo reaching the sea-port in India. We also observe that since the customs authorities were not releasing the rubber process oil imported by the assessee and was further required for testing the samples by Central Research Chemical Laboratory as the samples under test does not match with aromatic oil mentioned in IS 15078:2001 and to avoid contesting the matter further the assessee chose to re-export the rubber process oil without incurring further demurrage charges and to avoid any further litigation the consignment was re-exported and also incurred huge loss on such re-export.
Held that the expenses incurred by the assessee, namely, for import of rubber process oil, loss on price fluctuation, freight and retention charges cannot be said that these expenses were incurred for infraction of law. These expenses were incurred in the course of carrying on business of the assessee and they are allowable as deduction under section 37(1) of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-22 [hereinafter referred to CIT (Appeals)] New Delhi, dated 19.03.2019 for assessment year 2014-15 in sustaining the disallowance of Rs.1,38,97,606/- on account of freight and exchange variation etc. on import and export of consignment of Rubber Process Oil by treating it as fine and penalty.
2. Briefly stated the facts are that the assessee company was incorporated on 6.12.2010 as a Joint Venture (JV) Company co-owned by Indian Oil Corporation Ltd., Marubeni Corporation of Japan and Trimurti Holding Corporation of Taiwan. During the year under consideration the company has started commercial production of Styrene Butadiene Rubber (SBR) on 4th February, 2014. The assessee for the assessment year under consideration filed its return of income on 29.11.2014 declaring loss of Rs.2,24,87,78,408/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (the Act) determining the loss at Rs.2,04,71,50,661/-. In the course of assessment proceeding the Assessing Officer noticed that assessee has debited Rs.1,95,77,000/-in the profit and loss account under the head inventory losses/damages. The assessee was required to clarify as to why the said loss of Rs.195.77 lakhs on account of inventory loss/damages is allowable. Assessee furnished its reply stating that the company imported the Rubber Process Oil which is free of import without any restrictions as notified under Trade and Regulation Act, 1992 read with para 4.1 of Foreign Trade Policy for 2013-14. It was submitted that on arrival of the goods the customs authorities have tested it and having found that some of the aromatic’s contents were higher than stipulated in the internal circulars (which were not in public knowledge) till placing of the order under the import of Hazardous Wastage Rule 2008 refused to clear import. Assessee submitted that it has not been given any testing report and in view of prevailing conditions and to avoid further litigation by appeals which would have resulted in large monetary burden by way of demurrages and retention charges etc. the assessee chose to re-export the goods on grounds of commercial expediency and, therefore, the expenses claimed are allowable business expenses.
3. However, not convinced with the explanation of the assessee the Assessing Officer disallowed Rs.195.77 lakhs as not allowable under section 37(1) of the Act on the ground that assessee had imported the product which is prohibited by law, hence such expenses claimed by the assessee are not allowable.
4. On appeal the ld. CIT (Appeals) sustained the disallowance of expenses to the extent of Rs.138.98 lakhs out of Rs.195.77 lakhs after giving a relief of Rs.56.79 lakhs on account of retention charges on other imports on other goods. The disallowance of expenses sustained by the ld. CIT (Appeals) are as under:-
