Shri Pradeep Singhal, Haridwar V. ITO, Haridwar

ITA 1418/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4162 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 05-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANKAJ BHALLA
• Keywords: Opportunity of being heard; Capital expenditure
• Section: 43B; 37(1); 37

Judgement Text

I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 2672/DEL /2010 ASSESSMENT YEAR: 2006-07 PERFECT AGRO MILLS PVT. LTD., 245, BHARAT NAGAR, NEAR STATE BANK OF PATIALA, LUDHIANA. (PAN: AAACP8891P) VS ITO, CIRCLE-14(2), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ BHALLA, CA RESPONDENT BY: SHRI ATIQ AHMAD, SR. DR DATE OF HEARING : 12.09.2017 DATE OF PRONOUNCEMENT: 04.10.2017 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 23.04.2010 PASSED BY THE LD . CIT(A)-XVII, NEW DELHI FOR ASSESSMENT YEAR 2006-07 WHEREIN THE SOLE GROUND OF DISPUTE IS AGAINST THE A CTION OF THE LD. CIT(A) UPHOLDING THE DISALLOWANCE OF DED UCTION OF EXCISE DUTY AMOUNTING TO RS. 50 LAKH. I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 2 2. BRIEF FACTS OF THE CASE ARE THAT FOR THE YEAR UN DER CONSIDERATION, THE ASSESSEE COMPANY FILED THE RETUR N OF INCOME DECLARING INCOME OF RS.1,05,429/-. THE AO NOTICED THAT THE ASSESSEE HAD PAID EXCISE DUTY OF R S. 50,00,000/- DURING THE YEAR UNDER CONSIDERATION. HE , THEREFORE, ASKED TO FILE DETAILS OF EXCISE DUTY PAI D AMOUNTING TO RS. 50,00,000/-, REASONS FOR ITS PAYME NT AND ORDER OF EXCISE DEPARTMENT IF ANY. THE ASSESSEE FILED COPY OF THE ORDER NO. A-558/CF/07/SC/(PB) DATED 31.01.2007 OF SETTLEMENT COMMISSION, CUSTOMS & EXCISE, ADMITTING THE CASE WHICH REVEALED THAT THER E WAS A SEARCH OPERATION CONDUCTED BY THE CENTRAL EXCISE DEPARTMENT ON 27.2.2006. EXCISE DEPARTMENT FOUND ON PHYSICAL VERIFICATION OF THE STOCK IN THE FACTORY O F THE ASSESSEE THAT GOODS VALUED AT RS. 27,26,365/- HAVE NOT BEEN ACCOUNTED FOR IN THE STATUTORY RECORDS AND THE SAME WERE SEIZED FROM THE FACTORY OF THE ASSESSEE. A PEN DRIVE WAS ALSO SEIZED FROM THE RESIDENCE OF SH. HARBHAJAN SINGH FROM WHICH THE RELEVANT DATA WITH REGARD TO UNACCOUNTED SALES MADE DURING THE PERIOD 1.4.2003 T O THE DATE OF SEARCH I.E. 27.2.2006 WERE RECORDED. TH E CENTRAL I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 3 EXCISE DEPARTMENT RETRIEVED THE DATA IN THE PRESENC E OF SH. HARBHAJAN SINGH AND ISSUED A SHOW CAUSE NOTICE TO T HE ASSESSEE. ON RECEIPT OF THE SHOW CAUSE NOTICE, THE ASSESSEE F ILED A PETITION BEFORE THE SETTLEMENT COMMISSION CUSTOMS & CENTRAL EXCISE FOR SETTLEMENT OF THE CASE. THE SETTLEMENT COMMISSION V IDE ORDER DATED 31.1.2007 ADMITTED THE APPLICATION FILED BY T HE ASSESSEE COMPANY IN WHICH THEY WERE ADMITTING THE UNACCOUNTE D SALES AT RS. 5,60,83,996/- AND EXCISE DUTY PAYABLE WAS DETER MINED AT RS. 96,00,833/- AFTER ALLOWING BENEFIT OF DUTY VALUE FO R THE F.Y. 2003- 04, 2004-05 AND 2005-06. THE AO OBTAINED INFORMATIO N FROM THE CUSTOMS & EXCISE DEPARTMENT RELATING TO THE UNACCOU NTED SALES AND ISSUED A SHOW CAUSE NOTICE ASKING THE DETAILS O F THE INVESTMENT MADE IN MANUFACTURING THE GOODS SOLD OUT SIDE THE BOOKS AND ALSO TO PROVIDE YEAR WISE/MONTH WISE BREA K-UP OF SALES MADE DURING THE PERIOD COVERED UNDER THE SEAR CH MADE BY CENTRAL EXCISE DEPARTMENT. THE ASSESSEE FILED LETTE R DATED 22.12.2008 AND SURRENDERED THE SUM OF RS. 35 LACS O N ACCOUNT OF INVESTMENT AND PROFIT EARNED IN RESPECT OF UNACC OUNTED SALES FOR A.Y. 2003-04 TO 2005-06 WITH THE CONDITION THAT THE DEPARTMENT WILL NOT REOPEN THE CASE FOR 2004-05 AND 2005-06 AND NO PENAL ACTION WILL BE INITIATED. THE ASSESSEE ALSO SUBMITTED I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 4 A CHART OF YEAR WISE SALES MADE ALONG WITH HIS LETT ER DATED 22.12.2008. THE DETAILS OF SALES TURNOVER AND COMPA RATIVE PROFIT AND LOSS ACCOUNT FALL IN DIFFERENT ASSESSMENT YEARS . THE AO DID NOT ACCEPT THE CONDITIONAL SURRENDER. THE AO OBSERV ED THAT UNDER I.T. ACT, INCOME IS TO BE TAXED ON YEARLY BAS IS AND NOT ON CONSOLIDATED BASIS AS RECORDED BY THE ASSESSEE. THE AO ISSUED A SHOW CAUSE U/S 145(3) FOR REJECTION OF THE BOOKS OF ACCOUNTS. IN RESPONSE TO THE SAME, THE ASSESSEE FILED LETTER DAT ED 30.12.2008 RETREATING THE CONDITIONAL SURRENDER OF RS. 35 LACS . ON THE BASIS OF INFORMATION AVAILABLE ON THE RECORD, THE AO RECA STED THE MANUFACTURING ACCOUNT TO ARRIVE AT THE GROSS PROFIT AND ACCORDINGLY, HE COMPUTED UNACCOUNTED GROSS PROFIT A T RS. 83,26,976/- FOR THE YEAR UNDER CONSIDERATION AND UN ACCOUNTED INCOME OF RS. 70,86,138/-IN RESPECT OF INVOICED SAL ES. THUS, TOTAL ADDITION ON THIS ACCOUNT WAS MADE AT RS. 1454,13,14 4/-. THE AO ALSO MADE ADDITION OF RS. 27,26,365/- ON ACCOUNT OF UNACCOUNTED CLOSING STOCK FOUND BY THE EXCISE DEPAR TMENT. 3. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE A SSESSEE MAY BE ALLOWED THE BENEFIT OF RS. 50 LAKH PAID TOWARDS EXCISE DUTY BUT THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE THE AMOUNT PAID WAS TOWARDS ADVANCE PAYMENT OF EXCISE DUTY AND NOT I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 5 AGAINST ANY LIABILITY CREATED BY THE CENTRAL EXCISE DEPARTMENT, THE PAYMENT MADE AS AN ADVANCE WOULD NOT FALL UNDER THE PROVISIONS OF SECTION 43B OF THE IT ACT. THE ASSES SING OFFICER ALSO NOTED THAT THE BENEFIT OF PROPORTIONATE EXCISE DUTY PAID AMOUNTING TO RS. 3792235/- HAS ALREADY BEEN ALLOWED BY ADJUSTING THE SAME AGAINST UNACCOUNTED SALE FOR THE YEAR UNDER CONSIDERATION. ON APPEAL BEFORE THE LD. CIT(A), TH E LD. CIT(A) DISMISSED THE ASSESSEES APPEAL ON THIS ISSUE AND N OW, THE ASSESSEE HAS APPROACHED THE ITAT AND HAS CHALLENGED THE UPHOLDING OF DISALLOWANCE BY THE ASSESSING OFFICER. 4. AT THE OUTSET, LD. AUTHORISED REPRESENTATIVE S UBMITTED THAT THE ASSESSEES CASE WAS COVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 IN I.T.A. NO. 5895/DEL/2014 WHEREIN THE ITAT HAD SET ASIDE IDENTI CAL ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE PURPOSE O F DETERMINING AS TO WHAT PORTION OF EXCISE DUTY DEMAND WAS PENAL IN NATURE AND WHAT PORTION WAS COMPENSATORY IN NATURE. LD. AUTHO RISED REPRESENTATIVE SUBMITTED THAT THE CASE MAY BE RESTO RED TO THE FILE OF THE ASSESSING OFFICER FOR SIMILAR PURPOSES IN TH IS YEAR ALSO. 5. LD. DR HAD NO OBJECTION TO THE ISSUE BEING RESTO RED TO THE FILE OF THE ASSESSING OFFICER. I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 6 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. WE FIND TH AT THE ITAT DELHI BENCH IN I.T.A. NO. 5895/DEL/2014 FOR ASSESSM ENT YEAR 2010-11 IN ASSESSEES OWN CASE VIDE ORDER DATED 30. 12.2016 HAD CONSIDERED AN IDENTICAL ISSUE AND HAD THEREAFTER RE STORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE RE LEVANT OBSERVATIONS OF THE ITAT IN THE SAID ORDER ARE CONT AINED IN PAGES 7 TO 12 AND THESE ARE BEING REPRODUCED HEREUNDER FO R A READY REFERENCE:- 4. CONSIDERING ABOVE SUBMISSION, I FIND THE RELEVANT FACTS OF THE CASE ON THE ISSUE IN BRIEF AR E THAT EXCISE DEPARTMENT HAD CONDUCTED OF SEARCH ON 25.2.2 006 IN THE PREMISES OF THE ASSESSEE COMPANY AND UNACCOUNTE D SALES OF RS. 5,60,83,946/- WAS DISCOVERED FOR FINAN CIAL YEARS 2003-04, 2004-05 AND 2005-06. THESE SALES WER E ADMITTED BY THE ASSESSEE BEFORE THE INCOME TAX SETT LEMENT COMMISSION AND CENTRAL EXCISE SETTLEMENT COMMISSION . EXCISE DUTY DEMAND OF RS. 96,00,833/- WAS RAISED BY THE EXCISE DUTY DEPARTMENT ON UNACCOUNTED SALES. ON THE BASIS OF ABOVE INFORMATION A DEMAND OF RS. 41,80,520/- WA S ALSO RAISED BY THE SALES TAX DEPARTMENT WHICH WAS DEPOSI TED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDER ATION AND WAS CLAIMED AS DEDUCTION U/S 43B OF THE ACT. TH E ASSESSING OFFICER DISALLOWED THE SALES TAX PAID WHI CH WAS CLAIMED U/S 37 READ WITH SECTION 43B OF THE INCOME TAX ACT TO THE EXTENT OF RS. 41,80,520/-. HE ALSO DISALLOWE D U/S 43B OF THE ACT THE BONUS PAID TO THE EXTENT OF RS. 96,929/-. THE SAME WAS QUESTIONED BEFORE THE LD. CIT (A) IN T HE FIRST APPEAL BY THE ASSESSEE BUT IT COULD NOT SUCCEED. TH E RELEVANT PROVISIONS OF SECTION 37(1) AND EXPLANATIO N THERETO OF THE INCOME TAX APPLICABLE IN THE PRESENT CASE AR E BEING REPRODUCED HEREUNDER:- I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 7 (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OF PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OF EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. EXPLANATION: FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESS EE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBI TED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR T HE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OF ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDIT URE. 4.1. THE AUTHORITIES BELOW WERE OF THE VIEW THAT A PER SECTION 37 OF THE INCOME TAX ACT ONLY THE LEGIT IMATE CLAIM OF ANY EXPENDITURE IS ALLOWABLE AND NON DISCL OSING OF ACTUAL SALES CANNOT BE SAID TO BE AN ACCEPTABLE PRA CTICE OF A PERSON AND THEREFORE , SALES TAX ON UNDISCLOSED SAL ES CANNOT BE ALLOWED AS DEDUCTION U/S 43B OF THE ACT. THE LD. CIT (A) ALSO REMAINED OF THE VIEW THAT A BUSINESS L OSS INCURRED IN THE COURSE OF AN UNLAWFUL BUSINESS IS ADMISSIBLE HOWEVER THE PROVISIONS OF THE EXPLANATIO N TO SECTION 37(1) ARE CLEARLY APPLIED AND BARRED ANY EXPENDITURE INCURRED ON CARRYING OUT UNLAWFUL ACTIV ITIES. THE HONBLE SUPREME COURT IN THE CASE OF PRAKASH CO TTON MILLS LTD. (SUPRA) HAS BEEN PLEASED TO HOLD THAT WH ENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALL OWABLE EXPENDITURE U/S 37(1), THE ASSESSING AUTHORITY IS R EQUIRED TO EXAMINE THE CLAIM OF THE PROVISIONS OF THE RELEV ANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDIN G THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE, TO FIND OUT WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITIES HAVE TO ALLOW DEDUCTION U/S 37(1) OF TH E ACT WHENEVER SUCH EXAMINATION REVEALS A CONCERN IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHENEVER SUCH IMPOST FOUND TO BE OF A COMPENSATORY IN NATURE I.E. PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE, THE AUTHORITIES ARE OBLIGED TO BIFURCATE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH I S COMPENSATORY IN NATURE AND REFUSE TO GIVE DEDUCTION TO THAT I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 8 COMPONENT WHICH IS PENAL IN NATURE. THE CONTENTION OF THE ASSESSEE IN THE PRESENT CASE BEFORE US, REMAINED TH AT THE ENTIRE AMOUNT EXCEPT RS. 1,87,126/- IS COMPENSATORY IN NATURE AND ONLY RS. 1,87,126/- WAS PENAL IN NATURE. THE ASSESSEE HAS ALSO TRIED TO SUPPORT ITS CLAIM BY REF ERRING THE ORDER OF INCOME TAX SETTLEMENT COMMISSION WHEREIN O FFER OF THE ASSESSEE COMPANY HAS BEEN ACCEPTED. REFERENCE O F CBDTS CIRCULAR NO. 772 DATED 23.12.1998 ALSO BEEN GIVEN. SEVERAL DECISIONS HAVE ALSO BEEN CITED BY THE LD. A R TO SUPPORT IT CONTENTION THAT PAYMENT OF SALES TAX DEM ANDED ON UNACCOUNTED SALES WAS COMPENSATORY IN NATURE AND THUS WAS AN ALLOWABLE DEDUCTION U/S 43B OF THE ACT. HAVING GONE THROUGH THESE DECISIONS AS WELL AS THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF P RAKASH COTTON MILLS LTD. (SUPRA), I AM OF THE VIEW THAT TH E CLAIM OF THE ASSESSEE THAT OUT OF THE TOTAL DEMAND OF RS. 41,80,520/- RAISED BY THE SALES TAX DEPARTMENT AND DEPOSITED BY THE ASSESSEE ONLY RS. 1,87,126/- WAS P ENAL IN NATURE AND REMAINING AMOUNT WAS COMPENSATORY HEN CE THE ASSESSEE WAS ELIGIBLE FOR THE CLAIMED DEDUCTION U/S 43B ON THE AMOUNT PAID WHICH WAS COMPENSATORY IN NA TURE NEEDS FRESH VERIFICATION AND CONSIDERATION IN VIEW OF THE ABOVE CITED DECISIONS BY THE LD. AR. THE MATTER IS THUS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECID E THE ISSUE AFRESH AS OBSERVED ABOVE, AFTER AFFORDING OPPORTUNI TIES OF BEING HEARD TO THE ASSESSEE. 7. IN RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 7. AS THE ASSESSEE HAS ITSELF PRAYED FOR A SET ASID E AND THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO DOES NOT H AVE ANY OBJECTION, WE DEEM IT FIT TO RESTORE THE ISSUE TO T HE FILE OF THE ASSESSING OFFICER FOR A FRESH VERIFICATION AND CONS IDERATION AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE IN LIGHT I.T.A. NO. 2672/DEL/2010 ASSESSMENT YEAR 2006-07 9 OF THE OBSERVATIONS OF THE ORDER OF THE ITAT FOR AS SESSMENT YEAR 2010-11 AS REPRODUCED ABOVE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 4 TH OCTOBER, 2017. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 4 TH OCTOBER, 2017 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGI STRAR