ACIT, New Delhi v. M/s. Murcury Rubber Mills,, Delhi

ITA 3489/DEL/2010 | 2007-2008
Pronouncement Date: 23-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 348920114 RSA 2010
Assessee PAN AAAFM8804G
Bench Delhi
Appeal Number ITA 3489/DEL/2010
Duration Of Justice 1 year(s) 2 month(s) 7 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Murcury Rubber Mills,, Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 23-09-2011
Date Of Final Hearing 03-08-2011
Next Hearing Date 03-08-2011
Assessment Year 2007-2008
Appeal Filed On 16-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH E DELHI ] BEFORE SHRI RAJPAL YADAV JM AND SHRI K. D. RAN JAN AM I. T. APPEAL NO. 3489 (DEL) OF 2010. ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME-TAX M/ S. MURCURY RUBBER MILLS C I R C L E : 19 (1) VS. MURCUR Y HOUSE N E W D E L H I. WAZIRPUR INDUSTRIAL AREA D E L H I 110 052. PAN / GIR NO. AAA FM 8804 G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI SIDHARTH JAIN C. A.; DEPARTMENT BY : SHRI R. S. NEGI SR. D. R. O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 7-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XXII NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS:- 1. THE LD. CIT (APPEALS) ERRED IN LAW AND O N THE FACTS IN DELETING THE ADDITION OF RS.76 84 169/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF TRADING ADDITION; 2. THE LD. CIT (APPEALS) ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.4 84 000/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF CENVAT CREDIT; 2 I. T. APPEAL NO. 3489 (DEL) OF 2010 . 3. THE LD. CIT (APPEALS) ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.1 38 066/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF LIQUIDATED DAMAGE; 4. THE LD. CIT (APPEALS) ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.3 45 546/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF MISCELLANEOUS ADJUSTMENTS; 5. THE LD. CIT (APPEALS) ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.97 000/- MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF TRAVELLING EXPENSES. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.76 84 169/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRADING ADDITIO N. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ISSUED SUMMONS UNDER SECTION 131 TO MANAGER STATE BANK OF INDIA G. T. ROAD BALLABHGARH AND WAS REQUIRED TO FURNISH STATEMENT OF STOCK GIVEN BY THE ASSESSEE DURING THE FINANCIAL YEAR 2006-07 AND THE COPY OF I NSPECTION REPORT. THE DESIRED INFORMATION WAS SUBMITTED BY THE STATE BANK OF INDIA. THE ASSE SSING OFFICER ON THE BASIS OF THE INFORMATION SUPPLIED BY SBI AND DETAILS OF MONTHLY PURCHASE SA LE DIRECT EXPENSES ETC. COMPUTED TRADING ACCOUNT ON MONTHLY BASIS WHICH IS REPRODUCED ON PAG E 2 OF THE ASSESSMENT ORDER. THE AO IN THE MONTH OF JUNE 2006 DECEMBER 2006 AND MARCH 2007 FOUND THAT THERE WAS LOSS OF RS.10 09 392/- RS.34 37 761/- AND RS.32 37 006/- R ESPECTIVELY. THE AO ASKED THE ASSESSEE TO EXPLAIN THE MANUFACTURING PROCESS. FROM THE DETAIL S SUBMITTED SHE NOTED THAT THERE WAS NO WASTAGE DURING THE COURSE OF MANUFACTURING PROCESS. SINCE THE ASSESSEE DID NOT OFFER ANY EXPLANATION FOR THE LOSSES SUFFERED IN THE MONTHS O F JUNE DECEMBER AND MARCH THE AO DISALLOWED THE LOSS BY MAKING ADDITION OF RS.76 84 169/- [RS.10 090 392 + RS.34 37 761 + RS.32 37 006/-]. 4.1 ON APPEAL IT WAS SUBMITTED THAT THE AO HAD FAIL ED TO APPRECIATE THE MANUFACTURING PROCESS OF THE ASSESSEE AND THE FACT THAT THE GOODS MANUFACTURED BY IT WERE NOT SOLD INSTANTLY. IT WAS ALSO SUBMITTED THAT THE GROSS PROFIT / LOSS WAS NEVER CALCULATED ON MONTHLY BASIS RATHER IT IS CALCULATED ON ANNUAL BASIS. THE FIRMS TOTAL TURNO VER WAS TO GOVERNMENT UNDERTAKINGS AND GOODS WERE SUPPLIED ON TENDER BASIS. IT WAS ALSO S UBMITTED THAT THE STOCK GIVEN TO THE BANKERS 3 I. T. APPEAL NO. 3489 (DEL) OF 2010 . WAS TO AVAIL CREDIT FACILITIES AND THE SAME COULD N OT BE MADE AS BASIS TO CALCULATE TRADING RESULTS OF THE YEAR. SALE TO GOVT. UNDERTAKINGS AND MANUFA CTURING ACTIVITIES WERE SUBJECT TO CENTRAL EXCISE VERIFICATION. NO ADVERSE FINDINGS WERE GIVE N BY THE CENTRAL EXCISE. UNDER THESE CIRCUMSTANCES NO ADVERSE VIEW CAN BE TAKEN AGAINST THE ASSESSEE. THE LD. CIT (APPEALS) AFTER CONSIDERING THE CONDITIONS MADE BY THE ASSESSEE NOT ED THAT THERE COULD BE MONTHLY VARIATIONS IN THE PROFITS ARISING TO THE BUSINESSMEN AND THEREFOR E THE AO WAS NOT JUSTIFIED TO RECAST THE PROFIT AND LOSS ACCOUNTS BY PICKING OUT CERTAIN MONTHS IN WHICH THE ASSESSEE HAD INCURRED LOSSES. THE AO HAD OBTAINED STOCK STATEMENT FROM THE BANK AND B ASED ON THOSE FIGURES HAD DRAWN UP AN ADVERSE INFERENCE AGAINST THE ASSESSEE. THE LD. CI T (A) FURTHER SUBMITTED THAT UNLESS THE STOCK WAS PLEDGED WHICH WAS UNDER THE CUSTODY OF THE BANK THE STATEMENT OF STOCK GIVEN TO THE BANK WAS MORE CONSIDERED AS AN EXERCISE TO GET MAXIMUM C REDIT FACILITY RATHER THAN ANYTHING ELSE. THE TURNOVER OF THE ASSESSEE WAS MOSTLY TO GOVT. UN DERTAKINGS WHICH WAS DONE ON TENDER BASIS. MANY TIMES DUE TO INCREASE IN MARKET RATE OF ITEMS THERE MAY BE LOSS IN A FIXED CONTRACT RATES FINALIZED EARLIER. THEREFORE THE LOSS SUFFERED IN A PARTICULAR MONTH COULD NOT BE TAKEN FOR EVALUATING MONTHLY PROFIT. THE INCOME IS TAXABLE O N ANNUAL BASIS. THE LD. CIT (A) THEREFORE DELETED THE ADDITION. 4.2 BEFORE US THE LD. AR OF THE ASSESSEE REITERATED THE SIMILAR ARGUMENTS. ON THE OTHER HAND THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE IT IS CLEAR THAT THE ASSESSI NG OFFICER HAD DRAWN MONTHLY PROFIT AND LOSS ACCOUNT ON THE BASIS OF INFORMATION GIVEN TO THE BA NK FOR THE PURPOSE OF AVAILING OF THE CREDIT FACILITIES. THE ASSESSEE IS ENGAGED IN MANUFACTURI NG OF CONVEYOR BELTS WHICH HAVE BEEN SUPPLIED MAINLY TO GOVT. UNDERTAKINGS ON TENDER BASIS. THE MANUFACTURING ACTIVITIES OF THE ASSESSEE ARE SUBJECT TO CENTRAL EXCISE. IT IS NOT THE CASE OF T HE AO THAT THE ASSESSEE HAD SOLD GOODS OUTSIDE THE BOOKS OF ACCOUNTS. THE AO HAD MERELY DRAWN MON THLY PROFIT AND LOSS ACCOUNT AND DISALLOWED THE LOSSES INCURRED BY THE ASSESSEE IN S OME OF THE MONTHS. THE METHOD OF COMPUTATION OF PROFIT AND LOSS ACCOUNT BY THE AO CA NNOT BE APPROVED AS THIS IS AGAINST THE NORMS 4 I. T. APPEAL NO. 3489 (DEL) OF 2010 . OF ANY BUSINESS OR THE GUIDE-LINES ISSUED BY THE IN STITUTE OF CHARTERED ACCOUNTANTS OF INDIA. A BUSINESSMAN CAN SUFFER LOSS IN A PARTICULAR MONTH F OR VARIOUS REASONS. ONE OF WHICH COULD BE SALE OF MANUFACTURED GOODS AT OLD RATES WHEREAS THE COST OF PRODUCTION MUST HAVE GONE UP BY LAPSE OF TIME. FROM THE TABLE IN ASSESSMENT ORDER WE ALSO FIND THAT IN THE MONTHS WHERE THE AO HAS COMPUTED THE PROFIT THE SAME IS IN THE RANGE M ORE THAN 50 TO 79 PER CENT WHICH IS NOT POSSIBLE IN ANY OF TRADING / MANUFACTURING ACTIVITI ES. THEREFORE IN OUR CONSIDERED OPINION THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO ON THE BASIS OF MONTHLY PROFIT AND LOSS ACCOUNT DRAWN UP BY HER WHICH RESULTED IN LOSS ES IN THOSE MONTHS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. C IT (A) DELETING THE ADDITION MADE BY THE AO TOWARDS TRADING ACTIVITIES. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.4 84 000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CENVAT CREDIT. THE AO FROM THREE CD REPORT NOTED THAT THE ASSESSEE HAD AVAILED CENVAT CREDIT OF RS.75 29 635/ - AS PER RG-23(II) ACCOUNTS. HOWEVER THE ASSESSEE HAS CREDITED ONLY RS.70 45 042/- AS PER PR OFIT AND LOSS ACCOUNT. THE AO ADDED THE DIFFERENCE OF RS.4 84 593/- TO THE TOTAL INCOME OF THE ASSESSEE. 7. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD TO MAINTAIN MANUFACTURING RECORDS ACCORDING TO THE EXCISE RULE S. THE ASSESSEE HAS PAID EXCISE DUTY ON PURCHASE OF RAW MATERIAL WHICH IS DEBITED IN THE RE CORDS. IN THE SAME FASHION HE HAD COLLECTED EXCISE DUTY ON SALES WHICH WERE CREDITED. THE DIF FERENCE OF THESE TWO AMOUNTS WAS DEPOSITED WITH THE EXCISE DEPARTMENT. IT WAS ALSO SUBMITTED THAT SOMETIMES SALES ARE LESS; IN THAT CASE EXCISE AMOUNT PAID ON PURCHASE OF RAW MATERIAL IS E XCESS WHICH STANDS TOWARDS DEPARTMENT THE CREDIT THEREOF IS CLAIMED IN THE NEXT FINANCIAL YEA R. IT WAS ALSO SUBMITTED THAT THE EXCISE RECORDS WERE RECONCILED AND AUDITED BY THE CENTRAL EXCISE D EPARTMENT AND STATUTORY AUDITORS OF THE ASSESSEE. THE BALANCE OF CENVAT CREDIT BEING CURRE NT ASSETS CANNOT BE TREATED PART OF THE TRADING ACCOUNT. THE CENTRAL EXCISE DUTY WHICH WAS PAID ON RAW MATERIAL PURCHASED EARLIER BY THE ASSESSEE WOULD BE UTILIZED IN THE NEXT FINANCIAL Y EAR. SINCE THE ACCOUNTS WERE AUDITED BY THE CENTRAL EXCISE DEPARTMENT THERE WAS NO REASON FOR MAKING THE ADDITION. THE LD. CIT (APPEALS) 5 I. T. APPEAL NO. 3489 (DEL) OF 2010 . RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDO NIPPO 260 ITR 275 (SC) OBSERVED THAT CENVAT CREDIT WAS AN ALLOWABLE EXPEND ITURE. HE FURTHER NOTED THAT IT WAS NOT PERMISSIBLE FOR THE AO TO ADOPT DIFFERENT METHODS O F VALUATION OF EXCISE DUTY PAID ON RAW MATERIAL WHEN THEY WERE PURCHASED AND UN-CONSUMED R AW MATERIAL ON THE HAND IN THE YEAR END. THE AO WAS NOT JUSTIFIED IN ADOPTING THE GROSS METH OD AT THE TIME OF PURCHASE AND NET METHOD OF VALUATION AT THE TIME OF VALUATION OF STOCK ON HAND . MERELY BECAUSE MODVAT CREDIT IS AN IRREVERSIBLE CREDIT AVAILABLE TO THE MANUFACTURERS UPON PURCHASE OF DUTY PAID RAW MATERIAL IT WOULD NOT AMOUNT TO INCOME WHICH IS LIABLE TO BE T AXED. THE LD. CIT (APPEALS) ACCORDINGLY DELETED THE ADDITION MADE ON ACCOUNT OF CENVAT CRED IT. 8. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUBMITTED THAT EXCISE DU TY IS PAYABLE ON MANUFACTURED GOODS. THE ASSESSEE RECEIVED CREDIT FOR EXCISE DUTY PAID BY IT ON RAW MATERIAL. THE PRODUCTS MANUFACTURED BY THE ASSESSEE ARE SUBJECT TO PAYMENT OF EXCISE DU TY. AS PER EXCISE DUTY THE CONVEYOR AND TRANSMISSION BELTS ARE EXCISABLE ITEMS. THE ASSESS EE HAD AVAILED CENVAT CREDIT OF RS.75 29 635/- AS PER RG-23(II) RECORDS. HOWEVER THE AMOUNT CRED ITED IN THE PROFIT AND LOSS ACCOUNT WAS RS.70 45 042/-. THE ASSESSEE HAD PAID EXCISE DUTY ON PURCHASE OF RAW MATERIAL WHICH WAS DEBITED IN THE RECORDS. EXCISE DUTY COLLECTED ON S ALES HAS BEEN CREDITED. HENCE NO ADDITION CAN BE MADE ON ACCOUNT OF CENVAT CREDIT. 9.1 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE CASE BEFORE US THE PRODUCTS MANUFACTURED BY THE ASS ESSEE ARE SUBJECT TO EXCISE DUTY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAD PAID E XCISE DUTY ON PURCHASES THE CREDIT THEREOF WILL BE AVAILABLE FROM EXCISE DUTY TO BE PAID ON FINISHE D GOODS WHEN THE GOODS WILL BE SOLD. IN THE YEAR UNDER CONSIDERATION THE EXCISE DUTY PAID ON R AW MATERIAL IS MORE THAN THE EXCISE DUTY COLLECTED ON SALES. 9.2 HONBLE SUPREME COURT IN THE CASE OF CIT VS. IN DO NIPPON CHEMICALS CO. LTD. (SUPRA) HELD THAT UNDER MODVAT SCHEME THE ASSESSEE GOT CRED IT FOR EXCISE DUTY ALREADY PAID ON THE RAW 6 I. T. APPEAL NO. 3489 (DEL) OF 2010 . MATERIALS PURCHASED BY THEM AND UTILIZED IN THE MAN UFACTURE OF EXCISABLE GOODS. WHEN THEY MANUFACTURED THE GOODS AND SOLD THEM THE PROPORTIO NATE PART OF CENVAT CREDIT WAS SET OFF AGAINST THE EXCISE DUTY LIABILITY. THE ASSESSEE HAD IN VAL UING THEIR STOCK UNIFORMLY ADOPTED THE NET METHOD VIZ. VALUING RAW MATERIALS AT PURCHASED PRI CE MINUS THE MODVAT CREDIT. THIS METHOD WAS ALSO ADOPTED WHILE VALUING THE UN-CONSUMED RAW MATERIAL AND WORK-ION-PROGRESS AT THE END OF THE YEAR. THE AO TOOK THE VIEW THAT MODVAT CRED IT SHOULD BE TREATED AS AN INCOME OR ADVANTAGE IN THE NATURE OF INCOME AND ADDED THE MOD VAT CREDIT. ITAT HELD THAT MODVAT CREDIT COULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESS EE. ON APPEAL BOMBAY HONBLE HIGH COURT AFFIRMED THE DECISION OF THE ITAT. ON FURTHER APPE AL HONBLE SUPREME COURT AFFIRMING THE DECISION OF THE HONBLE HIGH COURT HELD THAT (I) ME RELY BECAUSE MODVAT CREDIT WAS AN IRREVERSIBLE CREDIT AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY PAID RAW MATERIAL THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED UNDER THE ACT; INCOME WAS NOT GENERATED TO THE EXTENT OF MODVAT CREDIT ON UN-CONS UMED RAW MATERIAL; AND (II) THAT IT WAS NOT PERMISSIBLE FOR THE AO TO ADOPT THE GROSS METHOD FO R VALUATION OF RAW MATERIALS AT THE TIME OF PURCHASE AND NET METHOD FOR VALUATION OF STOCK ON H AND. SINCE THE FACTS OF THE CASE IN HAND ARE IDENTICAL TO THE CASE OF INDO NIPPON CO. LTD. (SUP RA) RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IT IS HELD THAT CENVAT CREDI T AVAILABLE TO THE ASSESSEE WILL NOT BE LIABLE TO TAX AS IT DOES NOT CONSTITUTE INCOME IN THE HANDS O F THE ASSESSEE. THE MODVAT CREDIT WILL BE ADJUSTED AGAINST THE EXCISE DUTY PAYABLE IN THE NEX T YEAR. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEA LS) DELETING THE ADDITION. 10. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1 38 066/- ON ACCOUNT OF LIQUIDATED DAMAGES AND DELETING THE ADDI TION OF RS.3 45 546/- ON ACCOUNT OF MISC. ADJUSTMENTS. THE AO WHILE COMPLETING THE ASSESSMEN T NOTED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.1 38 066/- AS LIQUIDATED DAMAGES AND M ISC. ADJUSTMENTS AT RS.3 45 546/- ON ACCOUNT OF SHORT RECEIPTS OF SALE PROCEEDS. THE AO AFTER ISSUE OF SHOW CAUSE NOTICE OBSERVED THAT DEDUCTION WAS NOT ALLOWABLE UNDER SECTION 36(1 )(VII) READ WITH SECTION 36(2) OF THE ACT. HE THEREFORE ADDED BOTH THE AMOUNTS. ON APPEAL IT W AS SUBMITTED BY THE ASSESSEE THAT LIQUIDATED CHARGES WERE NOT BAD DEBTS BUT REPRESENTED LESSER OF SALE PRICE DUE TO BELATED DELIVERY OF THE GOODS. THE ASSESSEE WAS SUPPLYING ITS GOODS TO GOV T. UNDERTAKINGS OR PSUS AND GOODS WERE 7 I. T. APPEAL NO. 3489 (DEL) OF 2010 . SUPPLIED THROUGH TENDER PROCESS. DUE TO SOME BUSIN ESS EXIGENCIES AT SOME POINT OF TIMES GOODS WERE NOT SUPPLIED IN TIME. IN THAT CASE THE GOVT. UNDERTAKINGS DEDUCTED LIQUIDATED DAMAGES. THOUGH THE ASSESSEE KEPT MAKING FOLLOW-UP FOR MAKIN G THE PAYMENT BY SUCH PSUS AND REGULAR CORRESPONDENCE HAD BEEN DONE WITH THOSE DEPARTMENTS BUT THE ASSESSEE COULD NOT GO INTO LITIGATION AS HE HAD TO MAKE FURTHER SUPPLIES TO TH EM. THE GOVT. DEPARTMENTS / UNDERTAKINGS WERE ONLY CUSTOMERS FOR THE PRODUCE MANUFACTURED BY THE ASSESSEE AND THEREFORE INDULGING WITH LITIGATION WITH THEM COULD BE HARMFUL FOR THE BUSIN ESS OF THE ASSESSEE. THE TOTAL CORRESPONDENCE REGARDING LIQUIDATE DAMAGES WAS AVAILABLE WITH THE ADDL. COMMISSIONER OF INCOME-TAX. HOWEVER THE AO HAD MADE ADDITION ARBITRARILY. THE LD. CIT (APPEALS) AFTER CONSIDERING THE FACTS OF THE CASE OBSERVED THAT LIQUIDATED DAMAGES WERE PART OF THE NORMAL COURSE OF BUSINESS AND THEREFORE THE SAME WERE ALLOWABLE AS BUSINESS EXPENDITURE. AS REGARDS DISALLOWANCE OF RS.3 45 546/- THE LD. CIT (APPEALS) NOTED THAT THE AMOUNT REPRESENTED THE LESS RECOVERY OF SALE PROCEEDS WHICH WAS A NORMAL AND ROUTINE THING IN C ASE OF CONTRACT BUSINESS. THE SHORT RECOVERIES ARE ALLOWABLE AS EXPENSES. THE LD. CIT (APPEALS) ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. 11. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUBMITTED THAT LIQUIDATED DAMAGES AND OTHER ADJUSTMENT RELATES TO SHORT RECOVERIES ON ACCOUNT OF DELAYED SUPPLY OF MATERIAL. THEREFOR E LIQUIDATED DAMAGES AND LESS RECOVERY OF SALE PROCEEDS IS AN ALLOWABLE EXPENSE. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE AMOUNT OF RS. 1 38 066/- REPRESENTED THE LIQUIDATED DAMAGES ON ACCOUNT OF DELAYED SUPPLY MADE TO GOVT. UNDERTAK INGS. ANOTHER AMOUNT OF RS.3 45 546/- REPRESENTS THE AMOUNT RECEIVED LESS FROM THE SALES MADE TO THE PUBLIC SECTOR UNDERTAKINGS. IT IS A COMMON FEATURE IN CONTRACT BUSINESS THAT ON DELAY ED SUPPLIES DEDUCTIONS ARE MADE. IT IS ALSO A COMMON FEATURE THAT SOMETIMES ENTIRE SALE PROCEEDS ARE NOT RECEIVED AND ARE SUBJECT TO CERTAIN DEDUCTIONS BY THE PURCHASER. IN A CASE WHEN SOME D EDUCTIONS ARE MADE EITHER ON ACCOUNT OF LIQUIDATED DAMAGES OR OTHERWISE THE DEDUCTIONS SO MADE WILL BE ALLOWABLE AS BUSINESS 8 I. T. APPEAL NO. 3489 (DEL) OF 2010 . EXPENDITURE. IN OTHER WORDS IT CAN BE SAID THAT T O THAT EXTENT SALES WOULD BE TREATED AS LOWER BY THE AMOUNT OF LIQUIDATED DAMAGES OR THE RECOVERY MA DE FROM THE SALES AFFECTED BY THE ASSESSEE. IN ANY CASE THE AMOUNT WHICH HAS NOT BEEN PAID BY T HE PURCHASER CANNOT BE TREATED AS INCOME. IT HAS TO BE DEDUCTED AS BUSINESS EXPENDITURE. ACCORD INGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION. 13. THE LAST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.97 000/- ON ACCOUNT OF TRAVELLING EXPENSES. THE AO OUT OF RS.4 07 063/ - INCURRED ON FOREIGN TRAVEL EXPENSES NOTED THAT AN AMOUNT OF RS.97 000/- WAS INCURRED BY DEEPA SINGHAL PARTNER AND DR. A. K. SINGHAL. THE ASSESSEE WAS ASKED TO FURNISH PROOF AND THE PUR POSE OF FOREIGN VISIT WITH DOCUMENTARY EVIDENCE. HOWEVER THE ASSESSEE FAILED TO FURNISH SUPPORTING EVIDENCE IN RESPECT OF PARTNER DEEPA SINGHAL AND DR. A. K. SINGHAL. HE THEREFORE DISALLOWED THE AMOUNT OF RS.97 000/-. ON APPEAL IT WAS SUBMITTED THAT EXPENSES WERE INCURRE D BY PARTNERS OF THE FIRM SHRI ANIL KUMAR SINGHAL AND MS. DEEPA SINGHAL. THE EXPENSES HAVE B EEN INCURRED TO EXPLORE BUSINESS OPPORTUNITIES. THE PARTNERS HAVE MADE VISIT TO USA BUT NO BUSINESS TRANSACTIONS CRYSTALLIZED DURING THE YEAR. IT WOULD NOT MEAN THAT THE EXPENS ES WERE NOT RELATED TO THE BUSINESS OR HAVE NOT BEEN INCURRED AT ALL. THE LD. CIT (APPEALS) HOWEVE R NOTED THAT THE EXPENDITURE INCURRED BY PARTNER ON FOREIGN TRAVEL COULD NOT BE DISALLOWED. THE PARTNERS WERE ENTITLED TO TRAVEL ABROAD FOR BUSINESS EXPLORATION. UNLESS CONTRARY WAS PROVED IT WAS NOT JUST A PLEASURE TRIP AND THEREFORE DISALLOWANCE COULD NOT BE MADE BY THE AO. 14. BEFORE US THE LD. SR. DR SUBMITTED THAT THE ASS ESSEE HAD NOT FILED ANY DETAILS FOR EXPENSES INCURRED ON FOREIGN TRAVEL. THE BUSINESS NEXUS HAD NOT BEEN PROVED. THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUPPO RTED THE ORDER OF THE LD. CIT (APPEALS). 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAD NOT GIVEN EVIDENCE PROVING THE BUSINESS PURPOSE IN RESPECT OF FOREIGN TRAVEL UNDERTAKEN BY THE PARTNERS. BEFORE US ALSO THE ASSESSEE HAD 9 I. T. APPEAL NO. 3489 (DEL) OF 2010 . NOT GIVEN ANY SUCH DETAILS. THE ASSESSEE HAS CLAIM ED THE EXPENDITURE AS DEDUCTIBLE. THEREFORE THE ONUS IS ON THE ASSESSEE TO SHOW THE NEXUS BETWE EN THE EXPENDITURE INCURRED AND FOREIGN VISITS MADE BY THE PARTNERS. THE ASSESSEE HAD NOT FILED A NY INFORMATION WHETHER ANY BUSINESS WAS PROCURED IN SUBSEQUENT YEARS. IN THE ABSENCE OF EV IDENCE TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS THE DISALLOWANCE MADE BY THE AO IN RESPECT OF FOREIGN TRAVEL HAS TO BE UPHELD. WE THEREFORE SET ASIDE THE ORDER OF THE LD. CIT (APPEALS) ON THIS ISSUE AND RESTORE THE ORDER OF TH E ASSESSING OFFICER. THE AO IS DIRECTED ACCORDINGLY. 16. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 23 RD SEPTEMBER 2011. SD/- S D/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23 RD SEPTEMBER 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 10 I. T. APPEAL NO. 3489 (DEL) OF 2010 .