ZENITH STEEL PIPES LTD. (NO.2) (NOW ZENITH LTD.) VS COMMISSIONER OF INCOME-TAX
1991 P T D 460
[Bombay High Court (India)]
Before S.P. Bharucha and T.D. Sugla, JJ
ZENITH STEEL PIPES LTD. (No.2) (NOW ZENITH LTD.)
versus
COMMISSIONER OF INCOME-TAX
Income Tax Reference No.218 of 1976, decided on 07/12/1988.
Income-tax---
----Business loss ---Assessee, a manufacturer of electric goods imported electric spare parts for his manufacturing business---Consignment of said imported spare parts was not traceable for a long time at the port and assessee had to get the consignment traced after entrusting the job to Agents and paid fees therefore-- Assessee found that spare parts were rusted and were not fit for his manufacturing business and decided not to get the same cleared on payment of duty, demurrage and other charges ---Assessee thus, wrote off the purchase price of consignment and fees paid to the Agents---Such amount, held, was a business loss and demand of inspection report about the consignment from assessee by the Income-tax Authorities was meaningless in circumstances.
The assessee had imported certain electrical spare parts for being used in the course of its manufacturing business. The said consignment was received at the port but the same was not traceable. The assessee entrusted the work of tracing the consignment to Agents, who were paid their fees of Rs.3,500: The said consignment was traced but the assessee found that the spare parts imported by it were rusted and it was not worthwhile to clear them after paying duty, wharfage, demurrage, etc. Accordingly, it decided not to take delivery of the goods and wrote off the amount of Rs.43,168 being the purchase price of the spare parts and Rs.3,5W being the fees paid to Agents, the total of which came to Rs.46,668 as business loss.
It is common ground that the consignment was not being traced for a sufficiently long time and it was traced only as a result of the efforts made by the assessee's agents, 'to whom the assessee had to pay fees of Rs.3,500. It is not on record as to how much time the agents took to trace the consignment. However, the assessee-company carries on its business and it is for the assessee to decide whether it was in its interest to clear the consignment or not as it would have amounted to waste of good money after bad money. It was a business decision which the departmental authorities could not have questioned without any cogent reasons. In the circumstances, insisting upon the inspection report was absolutely meaningless.
Zenith Steel Pipes Ltd. v. C.I.T. (1990)185 I T R 281 ref.
R.H. Toprani for the Assessee.
Dr. V. Balasubramanian and S.V. Naik for the Commissioner.
JUDGMENT
T.D. SUGLA, J: --The Tribunal referred only one question of law at the instance of the Revenue. The question reads as under:--
"Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction under Section 35-B (1)(a) of the Income-Tax Act, 1961, of Rs.10,000 in its assessment for the accounting period relevant to the assessment year 1971-727"
A similar question was referred by the Tribunal in the assessee's own case relevant to the assessment year 1970-71 in Income-tax Reference No. 219 of 1976 (Zenith Steel Pipes Ltd. (No.2) v. C.I.T. (1990) 115 I T R 281 (Bom), which we have disposed of today. Owing to paucity of facts, we have returned the question unanswered in that case. The position remains the same herein.
Accordingly, this question is returned unanswered.
In compliance with the directions of this Court, the Tribunal submitted a supplementary statement of the case and the following two questions of law are referred for our opinion. The two questions are;
"(1) Whether on the facts and in the circumstances of the cast, the Tribunal was right in holding that the assessee-company was not entitled to deduction of Rs. 43,168 (forming part of Rs. 46,668) being the cost of the consignment of imported electrical spare parts not taken delivery of by it from the Customs, either as a loss or expenditure, while computing its business income?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding that the assessee-company was not entitled to deduction of Rs. 3,500 (forming part of Rs. 46,668) being the fees paid by it to Messrs Insimax Corporation for tracing the consignment of imported, electrical spare parts not taken delivery of by it from the Customs either as a loss or expenditure, while computing its business income?"
Evidently, the subject-matter of both the questions is the same. The assessed had imported certain electrical spare parts for being used in the course of its manufacturing business. The said consignment was received at Bombay port but the same was not traceable. The assessed entrusted the work of tracing the consignment to Messrs insimax Corporation, Bombay, who were paid their fees of Rs.3,500. The said consignment was traced but the assessed found that the spare parts imported by it were rusted and it was not worthwhile to clear them after paying duty, wharfage, demurrage, etc. Accordingly, it decided not to take delivery of the goods and wrote off the amount of Rs.43,168 being the purchase price of the spare parts and Rs.3,500 being the fees paid to Messrs Insimax Corporation, the total of which came to Rs. 46,668 as business loss.
The Income-tax Officer rejected its claim on the ground that the loss was a loss on account of non-delivery by the assessee and it was not a loss in the normal course of carrying on of its business. The Appellate Assistant Commissioner confirmed the disallowance observing that, without taking actual delivery and putting the spare parts to test, it could not be possible for any one to say that the goods were heavily rusted and extensively deteriorated. On further appeal, the Tribunal also confirmed the disallowance. In its view, non-acceptance of the goods by the assessee, in the circumstances, amounted to confiscation of goods and this loss was therefore, more in the nature of penalty or fine rather than a loss during the normal course of business. The Tribunal observed that the assessed had not even produced the inspection report in order to prove that the goods were really rusted.
Shri Toprani, learned counsel for the assessed, submitted that the departmental authorities as well-as the Tribunal had failed to appreciate that the consignment containing spare parts was not traced by port/Customs authorities but was traced by the assessee's agents, Messrs Insimax Corporation, Bombay, who were paid their fees of Rs. 3,500 for the purpose. When they traced the consignment, they informed the assessed that the spare parts in the consignment were almost junk and that it was not worthwhile to clear them by incurring further expenditure by way of duty, wharfage, demurrage, etc. It was a business decision which their clients took and the departmental authorities had no business to question the same unless there was even a suggestion that the goods were wrongly imported or that the Customs authorities would have otherwise confiscated them. Dr. Balasubramanian relied on the order of the Tribunal.
In our opinion, the submissions on behalf of the assessee are well founded. It is common ground that the consignment was not being traced for a sufficiently long time and it was traced only as a result of the efforts made by the assessee's agents, Messrs Insimax Corporation, Bombay, to whom the assessee had to pay fees of Rs.3,500. It is not on record as to how much time the agents took to trace the consignment. However, the assessed-company carries on its business and it is for the assessee to decide whether it was in its interest to clear the consignment or not as it would have amounted to waste of good money after bad money. It was a business decision which the departmental authorities could not have questioned without any cogent reasons. In the circumstances, insisting upon the inspection report was absolutely meaningless.
In the result, we answer the aforesaid two questions raised in the supplementary statement of the case in the negative and in favour of the assessee.
No order as to costs
M.B.A./1143/T Question, answered in the negative,