DCIT, New Delhi V. M/s. Tower International Pvt. Ltd, New Delhi

ITA 1119/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9629 (ITAT-DELHI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 17-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Business expenditure; Difference of opinion
• Section: 37(1); 250; 201; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `H : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.1119/DEL./2009 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 16(1), VS. M/S TOWER INTERNATIONAL P VT. LTD., NEW DELHI. 101-102, SAGAR COMPLES, PLOT NO.4, NEW RAJDHANI ENCLAVE, VIKASH MARG, NEW DELHI. (PAN/GIR NO.AAACT8383L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA & TARUN KUMAR, AD V. REVENUE BY : SHRI N.K. CHAND, SR.DR ORDER PER K.D. RANJAN: AM THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 20 05-06 ARISES OUT OF THE ORDER OF CIT(A)-XIX, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,73,278 DISALL OWED BY THE ASSESSING OFFICER HOLDING THE PAYMENTS TO THAT EXTENT AS PENA L IN NATURE IN VIEW OF THE EXPLANATION TO SECTION 37(1) OF INCOME-TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,38,830 IGNORING T HE EXPLANATION TO SECTION 37(1) OF INCOME-TAX ACT, 1961. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE DISALLOWANCE OF RS.1,73,278/-. THE FACTS OF THE CASE STATED IN BRI EF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.1,73,278/- UNDER THE PENALTY IN PROFIT AND LOSS ACCOUNT. A PERUSAL OF ANNEXURE IV TO AUDIT REPORT SHOWED THAT THE ASSESSEE HAD INCURRED EXPENDITURE BY WAY OF PENALTY FOR VIOLATION OF LAW. THE ASSESSING OFFICER, THEREFORE , DISALLOWED THE CLAIM OF THE ASSESSEE WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE. I.T.A. NO.1119/DEL./2009 (A.Y. : 2005-06) 2 4. ON APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE TO MEET SALES TAX AGGRE GATING TO RS.97,028/- FOR ALLEGED SHORT COLLECTION ON ACCOUNT OF DIFFERENCE OF OPINIO N. THE PAYMENT MADE WAS NOT IN NATURE OF PENALTY. IT WAS ALSO SUBMITTED THAT MERE NOMENCLATURE OF PENALTY OR OTHERWISE COULD NOT LEAD TO DISALLOWANCE OF ANY EXPENDITURE. THE ASSESSEE PLACED RELIANCE ON SEVERAL DECISIONS IN SUPPORT OF HIS CONTENTION THAT THE AMOUNT, THOUGH TERMED AS PENALTY PAID, REPRESENTED THE DIFFERENCE BETWEEN THE FULL R ATE OF SALES-TAX AND CONCESSIONAL RATE AND, THEREFORE, THE SAME WAS NOT IN NATURE OF PENAL TY. THE COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE OBSERVED THAT SALES TAX DEMANDED WAS IN RESPECT OF SHORT COLLECTION OF SALE S TAX FROM THE ASSESSEE COMPANY. THERE WAS DIFFERENCE OF OPINION WITH REGARD TO RATE OF TAX TO BE COLLECTED ON THE SALES EFFECT. JUST BECAUSE EXCESS DEMAND RAISED BY THE SA LES TAX DEPARTMENT, SAME COULD NOT BE CONSIDERED AS PENALTY FOR DISALLOWANCE. HE ACCORDI NGLY DELETED THE ADDITION OF RS.97,028/-. AS REGARDS THE BALANCE AMOUNT OF RS. 76,250/-, IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE TO CUSTOMS DEPARTMENT FOR DELAY IN CLEARING THE GOODS WITHIN THE STIPULATED TIME U/S 48 OF CUSTOMS ACT, 1962. SINCE , THERE WAS NO VIOLATION OF LAW, THE PAYMENT MADE FOR DELAYED CLAIMS OF GOODS WAS COMPEN SATORY IN NATURE. THE COMMISSIONER OF INCOME-TAX (APPEALS) ACCORDINGLY AL LOWED THE CLAIM OF THE ASSESSEE. 5. BEFORE US, LD.SR.DR SUBMITTED THAT PAYMENT MADE BY THE ASSESSEE IS IN NATURE OF PENALTY AND, THEREFORE, THE ASSESSING OFFICER HAS R IGHTLY DISALLOWED THE AMOUNT. HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. BHARAT STEEL TUBES LTD., 226 ITR 750. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUBMITTED THAT COMMISSIONER OF INCOME-TAX (APPEALS) HAS RIGHTLY DE LETED THE ADDITION AS THE PAYMENT WAS NOT MADE AS PENALTY. HE PLACED RELIANCE ON T HE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF HINDUSTAN MOTORS LTD. VS. CIT, 218 ITR 450, WHEREIN IT HAS BEEN HELD THAT INTEREST PAID TO CUSTOMS DEPARTMENT FOR K EEPING GOODS IN WAREHOUSE BEYOND THE PRE-PERIOD WAS NOT PART OF CUSTOMS DUTY. THE A MOUNT BEING IN NATURE OF INTEREST WAS ALLOWABLE AS DEDUCTION. I.T.A. NO.1119/DEL./2009 (A.Y. : 2005-06) 3 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT ON THE GROUND THAT THE AMOUNT WAS IN NATURE OF PENALTY. HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT STEEL TUBES LTD.(SUPRA) HAS HELD THAT NO EXPENSES WHICH WERE PA ID BY WAY OF PENALTY FOR A BREACH OF LAW EVEN THOUGH IT MIGHT INVOLVE NO PERSONAL LIABIL ITY COULD BE SAID TO BE AN AMOUNT WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE ASSESSEE. PENALTY PAYABLE FOR NON- PAYMENT OF SALES-TAX WITHIN THE PRESCRIBED TIME IS NOT INTEREST FOR LATE PAYMENT OF TAX AND IS NOT DEDUCTIBLE AS BUSINESS EXPENDITURE U/S 37 OF THE ACT. FURTHER, HON'BLE APEX COURT IN THE CASE OF PRAKASH COTTON MILLS P. LTD. VS. CIT , 201 ITR 684 HAS HELD THAT WHENEVER SALES TAX PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALLOWABLE EXPENDITURE U/S 37(1) OF INCOME-TAX ACT, 1961, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR THE PAYMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLA TURE OF THE IMPOST AS GIVEN BY THE STATUTE, TO FIND WHETHER ITS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION U/S 37(1) WHENEVER SUCH EXAMINATION REVEA LS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHENEVER SUCH IMPOS T IS FOUND TO BE OF A COMPOSITE NATURE, I.E., PARTLY OF COMPENSATORY NATURE AND PAR TLY OF PENAL NATURE, THE AUTHORITIES HAVE TO BIFURCATE THE TWO COMPONENTS OF IMPOST AND GIVE DEDUCTION OF THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUSE TO GIVE DEDUCTION OF THAT COMPONENT WHICH IS PENALTY IN NATURE. IF THE FACTS OF THE CASE ARE EXAMINED I N THE LIGHT OF THE AFORESAID DECISIONS, WE FIND THAT COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT EXAMINED THE NATURE OF THE AMOUNT PAID BY THE ASSESSEE AS TO WHETHER THEY ARE COMPENSATORY IN NATURE OR PENAL IN CHARACTER. WE, THEREFORE, FEEL IT PROPER TO SET AS IDE THE MATTER TO THE FILE OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WITH THE DIREC TIONS TO EXAMINE THE NATURE OF THE AMOUNT PAID AND TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISIONS REFERRED TO ABOVE. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.6,38,830/-. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFFICER FROM SCHEDULE XII OF PROFIT & LOSS ACCOUNT FOUND THAT A SUM OF RS.20,96, 084/- WAS PAID ON ACCOUNT OF DELAYED PAYMENT OF CUSTOMS DUTY. THE PAYMENT OF IN TEREST WAS A LIABILITY WHICH ACCRUED I.T.A. NO.1119/DEL./2009 (A.Y. : 2005-06) 4 ON INFRACTION OF LAW AND ACCORDINGLY INTEREST ON DE LAY IN DEPOSIT OF STATUTORY DUES WAS TREATED AS PENAL INTEREST AND DISALLOWED THE SAME. 8. ON APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED THAT AS PER CUSTOMS LAW IF AN IMPORTER FAILS TO DEP OSIT THE IMPORT DUTY WITHIN 5 DAYS (EXCLUDING HOLIDAYS) FROM THE DATE ON WHICH THE BIL L OF ENTRY IS RETURNED TO IT FOR PAYMENT OF DUTY THEN INTEREST SHALL BE CHARGEABLE IN ACCORD ANCE WITH THE PROVISIONS OF LAW. IT WAS ALSO SUBMITTED THAT PAYMENT OF INTEREST WAS COMPENS ATORY IN NATURE AND, THEREFORE, THE SAME COULD NOT BE TREATED AS PENALTY. HE PLACED RE LIANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDIA PIST ONS LTD., 250 ITR 279 WHEREIN IT HAS BEEN HELD THAT INTEREST PAYMENT FOR DELAY IN REMITT ANCE OF CUSTOMS DUTY WAS ALLOWABLE AS BUSINESS EXPENDITURE AS IT WAS ONLY COMPENSATORY IN NATURE. THE ASSESSEE ALSO PLACED RELIANCE ON OTHER DECISIONS IN SUPPORT OF THE CONTE NTION THAT INTEREST IN RESPECT OF ARREARS OR DELAYED PAYMENT OF ANY CESS CONSTITUTED A PERMIS SIBLE DEDUCTION AS IT DID NOT REPRESENT A PENALTY FOR INFRINGEMENT OF LAW, BUT WAS IN THE N ATURE OF COMPENSATION PAID TO THE GOVERNMENT FOR THE DELAY IN THE PAYMENT OF CESS. T HE COMMISSIONER OF INCOME-TAX (APPEALS) AFTER EXAMINING THE PROVISIONS OF CUSTOMS ACT HELD THAT THE PAYMENT MADE BY THE ASSESSEE WAS NOT FOR ANY VIOLATION OF LAW. THE AMOUNT PAID WAS IN TERMS OF INTEREST AS PER SECTION 47 OF THE CUSTOMS ACT. HENCE, IT WA S COMPENSATORY IN NATURE AND ALLOWABLE EXPENDITURE. HE ACCORDINGLY ALLOWED THE C LAIM OF THE ASSESSEE. 9. BEFORE US, LD.SR.DR SUPPORTED THE ORDER OF THE A SSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE RELIED ON THE DECISIO N OF ITAT, NAGPUR BENCH IN THE CASE OF WESTERN COAL FIELDS LTD., VS. ACIT IN I.T.A. NOS .289 AND 290/NAG./2006 FOR ASSESSMENT YEAR 2002-03 AND 2003-04 DATED 30.6.2009 WHEREIN IT HAS BEEN HELD THAT INTEREST PAID ON DELAYED PAYMENT OF TAX WAS IN COM PENSATORY NATURE. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM O F THE ASSESSEE HAS ALSO OBSERVED THAT INTEREST WAS PAID ON DELAYED DEPOSIT OF STATUTORY D UES. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE PROVISIONS OF SECTION 47 OF THE CUSTOMS ACT, 1962. SUB-SECTION (2) OF SE CTION 47 OF CUSTOMS ACT PROVIDES THAT I.T.A. NO.1119/DEL./2009 (A.Y. : 2005-06) 5 WHERE IMPORTER FAILS TO PAY THE IMPORT DUTY UNDER S ECTION 47(1) WITHIN 5 DAYS, EXCLUDING HOLIDAYS FROM THE DATE ON WHICH THE BILL OF ENTRY I S RETURNED TO HIM FOR PAYMENT OF DUTY, HE SHALL PAY INTEREST AT SUCH RATE NOT BELOW 10% AN D NOT EXCEEDING 36% P.A. SINCE, THE ASSESSEE HAD PAID THE INTEREST ON DELAYED PAYMENT O F IMPORT DUTY, THEREFORE, THE PAYMENT OF INTEREST IS COMPENSATORY IN NATURE. IT IS NOT IN NATURE OF PENALTY. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS) DELETING THE ADDITION. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. ORDER PRONOUNCED IN OPEN COURT ON 25/09/2009. [ RAJPAL YADAV ] [ K. D. RAN JAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : SEPT. 25, 2009. *SKB* COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS)-XIX, NEW DELHI. 5. CIT(DR), ITAT, NEW DELHI. BY ORDER. ASSISTANT REGISTRAR, ITAT.