Bihar Foundry& Casting Ltd, Ranchi V. DCIT,Circle-1, Ranchi

ITA 112/RAN/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0027 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 03-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ORAON
• Assessee Lawyers: DEVASHISH SANNIGRAHIC A
• Keywords: Business expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

1 ITA NO. 112/RAN/2015 A.Y.2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI BEFORE SHRI N.V.VASUDEVAN, HONBLE JUDICIAL MEMBER AND SHRI M.BALAGANESH, HONBLE ACCOUNTANT MEMBER ITA NO. 112/RAN/2015 (ASST. YEAR : 2012-13) BIHAR FOUNDRY & CASTING LTD. SHANTI NIWAS, MAIN ROAD, RANCHI-834 001 VS. DCIT, CIRCLE-1, CENTRAL REVENUE BUILDING, MAIN ROAD, RANCHI-834 001 PAN NO. AABCB 1852 D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEVASHISH SANNIGRAHI-C.A DEPARTMENT BY : SHRI CHOUDHARY ORAON - DR DATE OF HEARING : 14/09/2016. DATE OF PRONOUNCEMENT : 16/09/2016. O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 10.06.2015 OF COMMISSIONER OF INCOME TAX (APPEALS) RANCHI (JHARKHAND), RELATING TO ASSESSMENT YEAR (AY)2012-1 3. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN T HIS APPEAL BY THE ASSESSEE IS AS TO WHETHER THE REVENUE AUTHORITIES W ERE JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.7,90,359/- WHICH WAS INTEREST U/S.234C OF THE IN COME TAX ACT, 1961 (ACT) PAID BY THE ASSESSEE FOR NOT PAYING ADVANCE T AX IN TIME AND 2 ITA NO. 112/RAN/2015 A.Y.2012-13 ANOTHER SUM OF RS.11,275/- WHICH WAS INTEREST FOR D ELAY IN DEPOSIT OF TAX DEDUCTED AT SOURCE (TDS) IN ALL A SUM OF RS.8,0 1,634/-. 3 . THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF STEEL, SPONGE IRON AND FERRO ALLOY. FOR AY 2012-13, THE ASSESSEE FILED RETURN OF INCOME DECLARING LOSS OF R S.4,92,31,576/-. WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE A CT, THE AO REDUCED FROM THE LOSS DECLARED BY THE ASSESSEE THE SUM OF R S.7,90,359/- WHICH WAS INTEREST U/S.234C OF THE INCOME TAX ACT, 1961 ( ACT) PAID BY THE ASSESSEE FOR NOT PAYING ADVANCE TAX IN TIME AND ANO THER SUM OF RS.11,275/- WHICH WAS INTEREST FOR DELAY IN DEPOSIT OF TAX DEDUCTED AT SOURCE (TDS) IN ALL A SUM OF RS.8,01,634/-, ON THE GROUND THAT THE SUM IN QUESTION IS NOT ALLOWABLE AS DEDUCTION IN VIEW O F THE PROVISIONS OF EXPLANATION TO SEC.37(1) OF THE ACT. SEC.37(1) OF THE ACT AND EXPLANATION THERETO READS AS FOLLOWS: (1) ANY EXPENDITURE ( NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE ), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR P ROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. 4. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT INTER EST PAID U/S.234C OF THE ACT AND INTEREST ON LATE DEPOSIT OF TAX DEDU CTED AT SOURCE WERE COMPENSATORY IN NATURE AND WHAT CAN BE DISALLOWED U NDER EXPLANATION TO SEC.37(1) OF THE ACT IS ONLY EXPENDITURE INCURRE D FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF THE HONBLE SUPREME CO URT IN THE CASE OF 3 ITA NO. 112/RAN/2015 A.Y.2012-13 PRAKASH COTTON MILL PVT.LTD. 201 ITR 684(SC) AND CIT VS. AHMEDABAD COTTON MANUFACTURING COMPANY PVT. LTD. 205 ITR 163 (SC). IT WAS CONTENDED THAT WHAT NEEDS TO BE DONE BY AN ASSESSIN G OFFICER, IN SIMILAR CIRCUMSTANCES, IS TO EXAMINE THE CLAIM OF A N ASSESSEE THOUGH CALLED A PENALTY IS TO ENSURE WHETHER THE LAW OR SC HEME UNDER WHICH THE AMOUNT WAS PAID REQUIRES SUCH PAYMENT TO BE MAD E AS PENALTY OR AS SOMETHING AKIN TO PENALTY WHICH IS IMPOSED BY WA Y OF PUNISHMENT FOR BREACH IN INFRACTION OF LAW OR THE STATUTORY SC HEME. IF THE AMOUNT SO PAID IS FOUND TO BE NOT A PENALTY OR SOMETHING A KIN TO PENALTY DUE TO THE FACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS I N EXERCISE OF AN OPTION CONFERRED UPON HIM UNDER THE VERY LAW OR SCH EME, THEN ONE HAS TO REFER SUCH A PAYMENT AS BUSINESS EXPENDITURE AND CONSEQUENTLY ALLOWABLE U/S 37 OF THE IT ACT AS AN INCIDENCE OF B USINESS LAID OUT AND EXPENDED FULLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 5. THE CIT(A) AGREED WITH THE SUBMISSION OF THE ASSES SEE AND WAS OF THE VIEW THAT THE CLAIM FOR DEDUCTION UNDER EXPL ANATION TO 37(1) OF THE ACT HAS NOT BEEN PROPERLY EXAMINED BY THE AO. HE HOWEVER WENT ON TO UPHOLD THE DISALLOWANCE BY APPLYING THE PROVI SIONS OF SEC.40(A)(II) OF THE ACT. THE PROVISIONS OF SEC.40 (A)(II) OF THE ACT READS THUS: AMOUNTS NOT DEDUCTIBLE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR A SSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SU CH PROFITS OR GAINS. 4 ITA NO. 112/RAN/2015 A.Y.2012-13 ACCORDING TO THE CIT(A) INTEREST PAID FOR DELAY IN PAYMENT OF TAX TO THE GOVERNMENT IN TIME WILL BE AKIN TO TAX PAID ON PROF ITS AND GAINS OF ANY BUSINESS AND THEREFORE CANNOT BE ALLOWED AS DEDUCTI ON U/S.40(A)(II) OF THE ACT. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HE ARD THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WHO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HARSHAD SHANTILAL MEHTA VS. CUSTODIAN AND OTHERS 231 ITR 871 (SC), WHEREIN THE HONBLE SUPREME COURT HELD THAT THE DEFINITION OF 'TAX' UNDER S. 2( 43) DOES NOT INCLUDE PENALTY OR INTEREST. THE HONBLE COURT HELD THAT UN DER S. 156, IT IS PROVIDED THAT WHEN ANY TAX, INTEREST, PENALTY, FINE OR ANY OF OTHER SUM IS PAYABLE IN CONSEQUENCE OF ANY ORDER PASSED UNDER THIS ACT, THE AO SHALL SERVE UPON THE ASSESSEE A NOTICE OF DEMAND AS PRESCRIBED. THE PROVISIONS FOR IMPOSITION OF PENALTY AND INTEREST A RE DISTINCT FROM THE PROVISIONS FOR IMPOSITION OF TAX. THE HONBLE COUR T HELD THAT NEITHER PENALTY NOR INTEREST CAN BE CONSIDERED AS TAX. IT WAS SUBMITTED THAT THOUGH THE AFORESAID JUDGMENT WAS RENDERED IN THE C ONTEXT OF SEC.11(2)(A) OF THE SPECIAL COURT (TRIAL OF OFFENCE S RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992, THE SAME REA SONING WILL ALSO APPLY TO DISALLOWANCE U/S.40(A)(II) OF THE ACT. ON THE D ISALLOWANCE UNDER EXPLANATION TO SEC.37(1) OF THE ACT, THE LEARNED CO UNSEL REITERATED SUBMISSIONS MADE BEFORE CIT(A). THE LEARNED DR REL IED ON THE ORDER OF THE CIT(A). 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON A P LAIN READING OF SEC.40(A)(II) OF THE ACT, IT CAN BE SEEN THAT WHAT CAN BE DISALLOWED UNDER THE SAID PROVISION IS ANY SUM PAID ON ACCOUN T OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR P ROFESSION. INTEREST PAID U/S.234C OF THE ACT AND FOR DELAY IN PAYMENT O F TAX DEDUCTED AT SOURCE CANNOT BE EQUATED WITH TAX LEVIED ON PROFITS OR GAINS OF 5 ITA NO. 112/RAN/2015 A.Y.2012-13 BUSINESS. THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF HARSHAD SHANTILAL MEHTA (SUPRA) CLEARLY SUPPORTS TH E STAND OF THE ASSESSEE IN THIS REGARD. 8. AS FOR AS DISALLOWANCE UNDER EXPLANATION TO SEC.3 7(1) OF THE ACT IS CONCERNED, EXPLANATION TO SEC.37(1) OF THE ACT WAS INSERTED BY THE FINANCE (NO.2) ACT, 1998 AND IT ONLY PROVIDES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. IN THE ME MO EXPLAINING THIS PROVISION IT HAS BEEN STATED AS FOLLOWS. IT IS PROPOSED TO INSERT AN EXPLANATION AFTER SUB- SECTION 1 OF SECTION 37 TO CLARIFY THAT ANY ALLOWANCE SHALL BE M ADE IN R/O EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THIS PROPOS ED AMENDMENT WILL RESULT IN DISALLOWANCE OF THE CLAIM MADE BY CE RTAIN TAX PAYERS OF PAYMENT ON ACCOUNT OF PROTECTION MONEY, EXTORTIO N, HAFTA, BRIBES ETC. AS BUSINESS EXPENDITURE. THIS AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL,1962 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEA R 1962-63 AND SUBSEQUENT YEARS. 9. IT CAN BE SEEN FROM THE ABOVE MEMORANDUM EXPLAINI NG THE PROVISIONS THAT THE TERM OFFENCE IS GENERALLY EQU IVALENT TO A CRIME. AN OFFENCE IS TRANSGRESSION OF LAW, A BREACH OF LAW ES TABLISHED FOR THE PROTECTION OF THE PUBLIC. PAYMENT OF INTEREST U/S. 234C AND FOR LATE PAYMENT OF TDS CANNOT BE SAID TO BE ANY AMOUNT PAID WHICH IS AN OFFENCE OR PROHIBITED BY LAW. IT IS A COMPENSATOR Y PAYMENT FOR NOT PAYING TAX IN TIME. THE HONOURABLE SUPREME COURT I N THE CASE OF PRAKASH COTTON MILLS PVT.LTD. VS. CIT 201 ITR 684 ( SC) HAS LAID DOWN THE FOLLOWING PRINCIPLES WITH REGARD TO ALLOWABILIT Y OF A CLAIM FOR DEDUCTION U/S.37(1) OF THE ACT, WITH REGARD TO FINE S, PENALTIES ETC., 6 ITA NO. 112/RAN/2015 A.Y.2012-13 WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALL OWABLE EXPENDITURE UNDER SECTION 37 (1) OF THE INCOME-TAX ACT, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHE ME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PA YMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPO ST AS GIVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION UNDER SECTION 37 (1) OF THE INCOME-TAX ACT, WHEREVER SUCH EXAMINATION RE VEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATUR E. WHEREVER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE, T HAT IS, PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE, THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COMPONENTS OF TH E IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSAT ORY IN NATURE AND REFUSE TO GIVE DEDUCTION TO THAT COMPONE NT WHICH IS PENAL IN NATURE. 10. IN THE CASE OF CIT VS. AHMEDABAD COTTON MFG.CO.LT D. 205 ITR 163 (SC) THE HONOURABLE SUPREME COURT FURTHER HELD AS F OLLOWS: WHAT NEEDS TO BE DONE BY AN ASSESSING AUTHORITY UN DER THE INCOME-TAX ACT, 1961, IN EXAMINING THE CLAIM OF THE ASSESSEE THAT THE PAYMENT MADE BY SUCH ASSESSEE WAS A DEDUCT IBLE EXPENDITURE UNDER SECTION 37 OF THE INCOME-TAX ACT ALTHOUGH CALLED A PENALTY IS TO SEE WHETHER THE LAW OR SCHEM E UNDER WHICH THE AMOUNT WAS PAID REQUIRED SUCH PAYMENT TO BE MAD E, AS PENALTY OR AS SOMETHING AKIN TO PENALTY, THAT IS IM POSED BY WAY OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW O R THE STATUTORY SCHEME. IF THE AMOUNT SO PAID IS FOUND TO BE NOT A PENALTY OR SOMETHING AKIN TO PENALTY DUE TO THE FACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN EXERCISE OF THE OPTION CONFERRE D UPON HIM UNDER THE VERY LAW OR SCHEME CONCERNED, THEN ONE HA S TO REGARD SUCH PAYMENT AS BUSINESS EXPENDITURE OF THE ASSESSE E, ALLOWABLE UNDER SECTION 37 OF THE INCOME-TAX ACT, AS AN INCID ENT OF BUSINESS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF THE BUSINESS. HOWEVER, SUCH PAYMENT OF THE ASSESSEE IS ONE WHICH IS MADE IN EXERCISE OF THE OPTION GIVEN TO SU CH ASSESSEE BY LAW OR THE STATUTORY SCHEME AND THERE ARISES NO NEE D FOR THE ASSESSING AUTHORITY TO GO INTO THE QUESTION WHETHER THE PAYMENT COULD BE REGARDED AS ONE MADE AS A MEASURE OF BUSIN ESS EXPEDIENCY, FOR IT CANNOT IGNORE THE FACT THAT THE LAW OR THE 7 ITA NO. 112/RAN/2015 A.Y.2012-13 STATUTORY SCHEME ENABLES INCURRING OF SUCH EXPENDIT URE IN THE COURSE OF THE ASSESSEE'S BUSINESS. 11. HAVING REGARD TO THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISIONS IT IS CLEAR THAT INTEREST PAID FOR DELAY IN REMITTI NG TAX TO THE GOVERNMENT CANNOT BE REGARDED AS FALLING WITHIN EXPLANATION TO SEC.37(1) OF THE ACT. WE ARE THEREFORE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM SHOULD BE ALLOWED. WE HOLD AND DIRECT ACCORDINGLY. 12 . IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALLOWE D . ORDER PRONOUNCED IN THE COURT ON 16/09/2016. SD/- SD/- (M.BALAGANESH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16 TH SEPTEMBER, 2016. DKP.PS/- COPY TO: 1. THE ASSESSEE-BIHAR FOUNDRY & CASTING LTD., SHANTI NIWAS, MAIN ROAD, RANCHI-834001 2. THE REVENUE-DCIT, CIRCLE-1,CENTRAL REVENUE BUILDING MAIN ROAD, RANCHI-834 001 3. THE CIT 4. THE CIT(A) 5. THE D.R. 6. GUARD FILE. BY ORDER /TRUE COPY/ SR P.S, ITAT, RANCHI