The Income Tax Appellate Tribunal (ITAT) Delhi Bench “H” delivered its judgment on the appeal filed by Indian Synthetic Rubber Pvt. Ltd. against the order passed by the Commissioner of Income Tax (Appeals)-22, New Delhi. The case was heard by Shri G. S. Pannu, President, and Shri Challa Nagendra Prasad, Judicial Member.
The appeal was filed challenging the order passed by the CIT(A)-22, New Delhi, which arose from the assessment order dated 13.12.2017 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2014-15.
The appellant challenged the disallowance of Rs. 1,38,97,606 on account of freight and exchange variation expenses by treating them as fine and penalty. The grounds of appeal included:
During the hearing, the appellant’s representatives, Shri M. P. Rastogi, Advocate, and Ms. Priyanka Goel, CA, contended that the expenses were incurred in the normal course of business operations and should be allowable under Section 37(1) of the Act. They argued that the expenses were related to the import and export of Rubber Process Oil, which is essential for the manufacturing of synthetic rubber.
The Tribunal observed that the appellant, Indian Synthetic Rubber Pvt. Ltd., was a Joint Venture company co-owned by Indian Oil Corporation Ltd., Marubeni Corporation of Japan, and Trimurti Holding Corporation of Taiwan. The company commenced commercial production of Styrene Butadiene Rubber (SBR) on 4th February 2014. For the assessment year under consideration, the appellant filed its return of income declaring a loss of Rs. 2,24,87,78,408.
The AO had disallowed Rs. 1,95,77,000 debited under inventory losses/damages, contending that the goods imported were prohibited by law. However, the appellant argued that the goods were imported legally and the expenses were incurred to avoid further litigation and demurrage charges.
The Tribunal noted that the disallowance by the AO was based on an incorrect understanding of the nature of the expenses. The Tribunal found that the expenses incurred were for the import of Rubber Process Oil, which was essential for the appellant’s business. The expenses included loss on price fluctuation, freight, detention charges, and customs fees and penalties, which were not for any infraction of law but were part of the business operations.
The Tribunal directed the AO to delete the disallowance of Rs. 1,38,97,606 made under Section 37(1) of the Act, stating that the expenses were allowable as business expenses.
The appeal filed by Indian Synthetic Rubber Pvt. Ltd. was allowed, and the disallowance of expenses amounting to Rs. 1,38,97,606 was deleted. The Tribunal emphasized that the expenses incurred by the appellant were in the normal course of business and were allowable under Section 37(1) of the Income Tax Act.
Order pronounced in open court on 4th May, 2023.
sd/- (G. S. PANNU) PRESIDENT
sd/- (Challa Nagendra Prasad) JUDICIAL MEMBER
Dated: 04/05/2023
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