Ammega Belting India Pvt Ltd, Chennai V. PCIT, Chennai-1, Chennai

ITA 1502/CHNY/2024

• Counselvise Citation: [2024] 129 COUNSELVISE.COM (IT) 0165 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-08-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 19-05-2024

Judgement Text

1 आयकर अपीलीय अिधकरण “ए” ायपीठ चेई म। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI माननीय ी एबी टी. वक, ाियक सद" एवं माननीय ी मनोज कु मार अ'वाल ,लेखा सद" के सम)। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ ITA No.1502/Chn y/2024 (िनधा*रणवष* / As sessment Year: 2018-19) M/s Ammega Belting India Pvt. Ltd. 25A/1/3, SIDCO Industrial Estate, Ambattur, Chennai-600 098. बनाम/ Vs . PCIT Chennai-1. थायीलेखासं./जीआइआरसं./PAN/GIR No. AACCH-4757-L (अपीलाथ/Appellant) : ( थ / Respondent) अपीलाथकीओरसे/ Appellant by : Shri Y. Sridhar (FCA)-Ld.AR  थकीओरसे/Respondent by : Shri Nilay Baran Som (CIT) -Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 19-08-2024 घोषणाकीतारीख /Date of Pronouncement : 03-09-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax Chennai-1 (Pr.CIT) vide impugned order dated 27-03-2024 in the matter of an assessment framed by Ld. AO u/s.143(3) r.w.s 143(3A) & 143(3B) of the Act on 06-04-2021. The grounds taken by the assessee are as under: - 1. The order passed by the ld. PCIT Chennai-1 invoking provisions of Section 263 of the IT Act, 1961 against the assessment order passed u/s 143(3) rws 144B of the Act, is contrary to law and facts and circumstances of the case. 2 2. The ld. PCIT has failed to appreciate that the appellant had borrowed funds from its holding company based in Hong Kong by way ECB loans and as per loan agreement, interest becomes due and payable on pt of January every year, since the holding company follows calendar year for finalization of accounts as per laws of that country. Accordingly, the interest payable for the calendar year Jan-Dec 2017 was paid by the appellant in January 2018 by deducting TDS @ 40% and the same was remitted without any delay. Hence, there is no need to disallow the interest. For the period of January to March 2018, interest is clubbed in the calendar year ending December 2018 and due tax has been deducted, hence there is no loss to the Revenue and for this reason, the assessment order cannot be said to be prejudicial to the interests of Revenue so as to attract Section 263 proceedings. 3. The ld. PCIT has erred in disallowing interest & penalty paid by the appellant on account of late filing of GST, Service Tax, LIC insurance, etc., amounting to Rs.1,17,514/-. Since, GST/Service Tax are allowable as a deduction to the appellant and consequently the delayed payment of interest also should be allowed as a deduction as the same are compensatory in nature and would be allowable as deduction in computation of income. 4. For the above reasons and other reasons that may be adduced at the time of hearing, it is prayed to the Hon'ble Forum that the impugned revision u/s 263 may please be quashed and justice be rendered. 2. The Ld. AR advanced arguments assailing the revision of the order on the ground that no prejudice had been caused to the revenue. The Ld.CIT-DR justified the revision of the order on the facts of the case. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 3. The assessee being resident corporate assessee is stated to be engaged in supply of industrial power transmission belts for automobile companies. During assessment proceedings, Ld. AO noted that the assessee obtained External Commercial Borrowings (ECB) and claimed foreign exchange fluctuation against the same. The loan was taken by the assessee from its holding company M/s. Megadyne Asia Pacific Ltd. However, the assessee did not produce relevant loan agreement. The Ld. AO held that loan was long-term unsecured borrowings and exchange fluctuation loss was claimed on loan which was payable in future. Therefore, the claim was contingent in nature and accordingly, disallowed. 3 4. Subsequently, Ld. Pr.CIT, upon perusal of Column 21(b)(ii) of Tax Audit Report in Form 3CD, noted that Tax Auditor reported disallowance of 30% u/s 40(a)(ia) towards interest paid to M/s. Megadyne Asia Pacific Ltd., Hongkong. The same was also disallowed by the assessee in the computation of Income. However, as per extant statutory provisions of Sec.40(a)(i), 100% of the interest should have been disallowed against interest payment to foreign entity. This issue was not considered in the assessment order. The additional disallowance to be made was quantified at Rs.32.11 Lacs in para 2.3 of the impugned order. 5. Another factor leading to the revision of the order was that the assessee claimed amount of Rs.1,20,235/- as interest & penalty out of which the assessee disallowed only a sum of Rs.2,721/- which represent interest on TDS. The balance amount of Rs.1,17,514/- (Rs.1,20,235 – Rs.2,721) was also to be disallowed. 6. The assessee submitted that as per the terms of the agreement, the interest would become due and payable only on January 01 st of each year. The assessee had duly deducted TDS whenever the interest became payable. For accounting purposes, the interest was calculated up-to March-end even though it was neither due nor payable. The interest and penalties were stated to be compensatory in nature. 7. However, aforesaid submissions could not find favor with Ld. Pr.CIT who observed that the assessee did not furnish the agreement of ECB loans. The claim that the holding company was following the calendar year was not tenable. The accrued interest as claimed was to be considered for disallowance. Further, the claim that the fines and penalties were compensatory was not tenable considering the decision of Hon’ble High Court of Madras in CIT vs. Rane Brake Linings Ltd. 4 [2001] 115 Taxman 367 (Mad.) holding that penalties paid for violating law in the course of conduct of business could not be regarded as deductible expenditure. 8. Finally, the assessment order was held to be erroneous and prejudicial to the interest of the revenue and accordingly, partly set aside with a direction to Ld. AO to examine the aforesaid issues and pass a fresh order in this regard. Aggrieved as aforesaid, the assessee is in further appeal before us. 9. We find that both the issues as flagged by Ld. Pr. CIT in the impugned order have never been examined by Ld. AO during the course of assessment proceedings. The issue of disallowance u/s 40(a)(ia), though reported by Tax Auditor, was not at all examined. The assessee made disallowance of 30% u/s 40(a)(ia) as against the fact that the provisions of Sec.40(a)(i) would apply to interest paid to a foreign entity and the provisions of Sec.40(a)(ia) would have no application in such a case. The copies of agreement of ECB loan were also not furnished by the assessee before any of the lower authorities. The issue of interest and penalties also skipped to be examined by Ld. AO since there is no material on record to suggest that any queries were made by Ld. AO in this regard during the course of assessment proceedings. On these facts, the revision of the order could not be faulted with. We see no reason to interfere in the same. However, our adjudication as above would not be construed to have any expression on the merits of the case. The assessee is free to agitate the impugned issues during consequential assessment proceedings. All the issues, on merits, are kept open. 5 10. The appeal stands dismissed. Order pronounced on 3 rd September, 2024 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) ाियक सद" /JUDICIAL MEMBER लेखा सद" / ACCOUNTANT MEMBER चे5ई Chennai; िदनांक Dated :03-09-2024 DS आदेशकीGितिलिपअ'ेिषत/Copy of the Order forwarded to : 1. अपीलाथ/Appellant 2.  थ/Respondent 3. आयकरआयु>/CIT Chennai. 4. िवभागीयितिनिध/DR 5. गाडCफाईल/GF