M/s Silicon Graphics Systems (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 2977/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7610 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: PIYUSH KUASHIK
• Keywords: Additional evidence
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G, NEW DELHI) BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2977 /DEL/2013 ASSESSMENT YEAR : 2008-09 SILICON GRAPHICS SYSTEMS (I), PVT. LTD., VS. DCIT, CIRCLE 8(1), REGUS BUSINESS CENTRE LEVEL, NEW DELHI 15, EROS CORPORATE TOWERS NEHRU PLACE, NEW DELHI -110 019 GIR / PAN:AAACS4104N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PIYUSH KUASHIK, ADV. RESPONDENT BY : SHRI BRR KUMAR, SR. DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 18.02.2013. THE ONLY GROUND TAKEN BY THE ASS ESSEE IN ITS APPEAL IS THE ACTION OF LD. CIT(A) BY WHICH HE HAD SUSTAINED DISA LLOWANCE ON ACCOUNT OF INTEREST ON CUSTOM DUTY AMOUNTING TO RS.55,92,254/- . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A RESELLER OF SILICON GRAPHICS PRODUCTS. THE CASE OF THE ASSESSEE WAS SE LECTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED TH AT ASSESSEE HAD DEBITED AN AMOUNT OF RS.55,92,254/- ON ACCOUNT OF INTEREST ON CUSTOM DUTY UNDER THE HEAD OPERATING AND OTHER EXPENSES. THE A.O. ASKED THE ASSESSEE TO PROVIDE DETAILS OF THE SAME BUT HE OBSERVED THAT ASSESSEE H AD NOT FILED ANY DETAIL. THE A.O. HELD THAT THE PAYMENT WAS IN THE NATURE OF PENALTY ON GOVERNMENT DUTIES WHICH WAS NOT ALLOWED UNDER THE PROVISIONS O F THE ACT AND, THEREFORE, ITA NO.2977/DEL/2013 2 HE DISALLOWED THE SAME. AGGRIEVED, THE ASSESSEE FI LED APPEAL BEFORE LD. CIT(A). LD. CIT(A) ON THE BASIS OF VARIOUS SUBMISS IONS INCLUDING ADDITIONAL EVIDENCE, WAS NOT CONVINCED WITH THE ARG UMENTS OF THE ASSESSEE AND UPHELD THE ACTION BY OBSERVING AS UNDER: THE A.O. MADE THE ADDITION STATING THAT NO DETAILS WERE GIVEN AND THAT INTEREST/PENALTY ON GOVT. DUES WAS NOT ON ALLO WABLE EXPENSE UNDER THE I. T. ACT. THE APPELLANT SUBMITTED THAT THE AMOUNT IN QUESTION WAS NOT A PENAL PAYMENT. SECTION 37 STAT ES THAT ANY EXPENDITURE INCURRED BY AN APPELLANT FOR ANY PURPOS E WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN THE CASE OF RAJ NARAIN AGARWAL VS CIT (DELHI HIGH COURT), IT WAS STATED THAT INTER EST PAID FOR DELAY IN PAYING TAX DEMAND NOT DEDUCTIBLE. IN THE CASE OF B HARAT COMMERCE AND INDUSTRIES LTD., IT WAS REAFFIRMED THAT ANY EXP ENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PRO HIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE P URPOSE OF BUSINESS OR PROFESSION. IN THE CASE OF JINDAL INDUSTRIES VS CIT, THE DEDUCTION ON ACCOUNT OF ADDITIONAL INCOME TAX WAS NOT ALLOWED . THE INTEREST ON CUSTOM DUTY HAS THE CHARACTER OF PENALTY. IN VIEW THEREOF, THE ADDITION OF RS.55,92,254/- IS CONFIRMED. THE GROUN D OF APPEAL IS RULED AGAINST THE APPELLANT. 3. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE P AYMENT WAS NOT IN THE FORM OF PENALTY AND RATHER IT WAS IN THE NATURE OF INTEREST WHICH IS ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THE LD. A.R. INVI TED OUR ATTENTION TO PAPER BOOK PAGE 13 WHERE THE FACT THAT THE AMOUNT WAS IN THE NATURE OF INTEREST AND NOT PENALTY, WAS PLACED. LD. A.R. FURTHER INVITED OUR ATTENTION TO THE ORDER OF SETTLEMENT COMMISSION AND SUBMITTED THAT THE ASS ESSEE WAS GIVEN IMMUNITY FROM PENALTY AND PROSECUTION AND THE AMOUN T ACTUALLY RELATED TO THE INTEREST WHICH NECESSARILY IS AN ALLOWABLE EXPE NDITURE. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS: ITA NO.2977/DEL/2013 3 I) MAHALAXMI SUGAR MILLS CO. VS CIT 123 ITR 429(S.C .) II) BALRAMPUR SUGAR CO. LTD. VS CIT 135 ITR 227 (CA L.) III) CIT VS VIKAS CHEMICALS IN I.T.A.NO. 11/2002 (D EL.) IV) CIT VS ENCHANTE JEWELLERY LTD. IN I.T.A.NO. 100 6/DEL.2011. 5. LD. D.R. ON THE OTHER HAND HEAVILY RELIED UPON T HE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT TH E PAYMENT DEBITED BY THE ASSESSEE IN ITS P & L ACCOUNT RELATES TO INTEREST O N CUSTOM DUTY AND NOT RELATED TO ANY PENALTY AMOUNT AS IS EVIDENT FORM CO PY OF SETTLEMENT ORDER PLACED AT PAPER BOOK PAGES 19-27. THIS FACT IS ALS O ESTABLISHES FROM PAPER BOOK PAGE 13 WHICH SPECIFICALLY MENTIONS THE AMOUNT AS INTEREST. THE CASE LAWS RELIED UPON BY THE LD. A.R. ARE IN ITS FAVOUR WHEREBY IN VARIOUS JUDICIAL PRONOUNCEMENTS, RELIED UPON BY THE LD. A.R., IT HAS BEEN HELD THAT INTEREST ON INDIRECT TAXES TAKES THE SHAPE OF TAXES AND ARE ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THE HON'BLE SUPREME COURT I N THE CASE OF MAHALAXMI SUGAR MILLS CO. HAS HELD AS UNDER: THE INTEREST PAYABLE ON AN ARREAR OF CESS UNDER S. 3(3) OF THE U.P. SUGAR CANE ACT, 1956 IS IN REALITY PART AND PARCEL OF THE LIABILITY TO PAY CESS. IT IS AN ACCRETION TO THE CESS. THE ARREA R OF CESS 'CARRIES' INTEREST; IF THE CESS IS NOT PAID WITHIN THE PRESCR IBED PERIOD A LARGER SUM WILL BECOME PAYABLE AS CESS. THE ENLARGEMENT OF THE CESS LIABILITY IS AUTOMATIC UNDER S. 3(3). NO SPECIFIC ORDER IS NE CESSARY IN ORDER THAT THE OBLIGATION TO PAY INTEREST SHOULD ACCRUE. AS SO ON AS THE PRESCRIBED DATE IS CROSSED WITHOUT PAYMENT OF THE CESS, INTERE ST BEGINS TO ACCRUE. IT IS NOT A PENALTY, FOR WHICH PROVISION HAS BEEN S EPARATELY MADE BY S. 3(5). NOR IS IT A PENALTY WITHIN THE MEANING OF S. 4 WHICH PROVIDES FOR A CRIMINAL LIABILITY AND A CRIMINAL PROSECUTION. TH E PENALTY PAYABLE UNDER S. 3(5) LIES IN THE DISCRETION OF THE COLLECT ING OFFICER OR AUTHORITY. ITA NO.2977/DEL/2013 4 7. MORE SPECIFICALLY HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS ENCHANTE JEWELLERY LTD. IN I.T.A.NO. 1006/DEL/2011 PRONOUNCED ON 20.11.2012 HAS CLEARLY HELD THAT PAYMENT OF INTERES T ON CUSTOM DUTY IS NOT HIT BY EXPLANATION BELOW SECTION 37(1) OF THE ACT A ND HAD DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 8. IN VIEW OF THE ABOVE, WE HOLD THAT THE INTEREST PAYMENT ON CUSTOM DUTY AS PER JUDICIAL PRECEDENT RELIED UPON BY THE L D. A.R. ARE EXPENSES ALLOWABLE UNDER THE PROVISIONS OF THE ACT AND, THER EFORE, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 9. IN VIEW OF ABOVE, APPEAL FILED BY THE ASSESSEE I S ALLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH NOV., 2014 SD./- SD./- ( H. S. SIDHU) (T.S. KAPOO R) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 12 TH NOV., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO.2977/DEL/2013 5 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DR AFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK 12/11/2014 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER