SAND PLAST INDIA LIMITED, Alwar V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, Alwar

ITA 310/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6277 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 05-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Assessee Lawyers: MUDIT JINDAL
• Keywords: Business expenditure
• Section: 143(3); 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 310/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 M/S SAND PLAST INDIA LIMITED VILLAGE GUNTI, NH-08, BEHROR, ALWAR (RAJASTHAN) CUKE VS. DY. COMMISSIONER OF INCOME TAX CIRCLE-2, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAFCS2228E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI VINOD GUPTA & SHRI MUDIT JINDAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 10/07/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 24/07/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A), ALWAR DATED 26.12.2017 FOR A.Y 2013-14 IN R ESPECT OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE A CT. 2. THE GROUND NOS. 1 AND 8 WERE NOT PRESSED DURING THE COURSE OF HEARING. HENCE THE SAME ARE DISMISSED AS NOT PRESSE D. 3. IN GROUNDS NOS. 2 TO 5, THE ASSESSEE HAS CHALLEN GED THE ADDITIONS U/S 41(1) ON ACCOUNT OF CERTAIN OUTSTANDING AMOUNTS TREATING THEM AS ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 2 BOGUS LIABILITY AND AT THE SAME TIME, CEASED TO EXI ST BY THE ASSESSING OFFICER. IT WAS SUBMITTED BY THE LD. AR THAT THE MA TTER IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 714/JP/2017 DATED 22/12/2017 FOR AY 2012-13. IT WAS SUBMITTED BY THE LD. AR THAT THE AO HAS TREATED THE LIABILITY AS BOGUS AND AT THE SAME TIME, HAS TREATED THE SAID LIABILIT Y AS CEASED TO EXIST. IT WAS SUBMITTED BY THE LD. AR THAT THE BOGUS LIABILIT Y DOES NOT COME UNDER THE PURVIEW OF 41(1) AS HELD BY THE CO-ORDINA TE BENCH IN THE EARLIER YEAR AND THEREFORE, IF THE LIABILITY IS BOG US, THERE DOES NOT ARISE ANY QUESTION OF CESSATION OF SAID LIABILITY. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF THE CO- ORDINATE BENCH IN THE EARLIER YEAR AND THE ADDITION SO MADE BY THE ASSESSING OFFICER DESERVE TO BE DELETED. 4. THE CO-ORDINATE BENCH IN ITA NO. 714/JP/2017 DATED 22/12/2017 HAS HELD AS UNDER:- 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OF FICER HAS INVOKED THE PROVISION OF SECTION 41(1) OF THE ACT, WHICH DEALS WITH THE SITUATION WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS Y EAR; THE ASSESSEE OBTAIN WHETHER IN CASH OR IN OTHER MANNER WHATSOEVE R, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 3 TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSONS OR THE VALUE OF BENEFIT AC CRUING TO HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PR OFESSION AND ACCORDINGLY CHARGEABLE TO INCOME- TAX AS THE INCOME OF THAT YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WH ICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEA R OR NOT. NOW, COMING TO THE FACTS OF THE PRESENT CASE, THE A SSESSING OFFICE WAS OF THE VIEW THAT LIABILITIES ARE BOGUS AND CEASED T O EXIST. IN OUR VIEW, THE LIABILITIES WHICH ARE BOGUS WOULD NOT BE WITHIN THE PURVIEW OF SECTION 41(1) OF THE ACT; HOWEVER, THE TRADING LIAB ILITIES WHICH CEASED TO EXIST WOULD FALL WITHIN THE PURVIEW OF SECTION 41(1 ) OF THE ACT. THEREFORE, BOTH LIABILITIES WHICH ARE BOGUS CANNOT BE TREATED AS LIABILITY WHICH CEASED TO EXIST IN FACT CESSATION OF LIABILIT Y WOULD BE WHERE IF TRADING LIABILITY WAS EXISTED. IN THE CASE OF BOGU S LIABILITY, WHICH WAS NOT IN EXISTENCE FROM THE TIME OF INCEPTION, CANNOT BE TREATED TO BE CEASED TO EXIST. HENCE, THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THIS ASPECT OF THE MATTER. ADMITTEDLY, THE LD. CIT( A) HAS NOT ACCEPTED THE EXPLANATION THAT SUCH LIABILITY WAS DISCHARGED IN SUBSEQUENT YEARS BY MAKING PAYMENT THROUGH BANKING CHANNELS. THE REL EVANT CONTENTS OF THE FINDING OF THE LD. CIT(A) ARE REPRODUCED HERE I N BELOW FOR THE SAKE OF CLARITY. ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 4 HOWEVER, FOR THE REMAINING CREDITORS, EITHER THEY HAVE NOT REPLIED OR THE NOTICES CAME BACK UN-SERVED. JUST B ECAUSE, SUBSEQUENTLY, CERTAIN PAYMENTS WERE MADE TO THEM BY THE APPELLANT DOES NOT ABSOLVED HIM FROM DISCHARGING TH E ONUS OF PROVING THE EXISTENCE OF SUCH PARTIES. NO CONFIRMA TIONS OR THEIR ITRS HAVE BEEN FILED BY THE APPELLANT. THEREFORE, THE AO IS JUSTIFIED IN ADDING THE BALANCE AMOUNTS OUTSTANDING AGAINST THEIR NAMES UNDER SECTION 41(1) OF THE ACT THE BALANCE AM OUNT CEASE TO EXIST. ACCORDINGLY, THE ADDITION U/S 41(1) OF T HE ACT IS REDUCED TO RS. 37,56,733/-. APPELLANT GROUND OF APPEAL ON THE ISSUE IS PARTLY ALLOWED. WE ARE UNABLE TO SUSTAIN THIS FINDING OF THE LD. CI T(A) FOR THE SIMPLE REASONS THAT THE BANKING ACCOUNTS CANNOT BE OPENED IN VACUUM. WE THEREFORE, DIRECT THE AO TO DELETE THIS DISALLOWANC E. THUS, THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 5. IN LIGHT OF ABOVE, RESPECTIVELY FOLLOWING THE DE CISION OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2012-1 3, THE ADDITION SO MADE BY THE AO U/S 41(1) IS HEREBY DELETED. IN THE RESULT, GROUND NOS. 2 TO 5 ARE HEREBY ALLOWED. 6. IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 1,45,353/- MADE BY THE AO ON ACCOUNT OF DELAY I N DEPOSIT OF EMPLOYEES CONTRIBUTION TOWARDS ESI AND PF. IN THIS REGARD, THE LD. AR HAS DRAWN OUR REFERENCE TO THE ASSESSMENT ORDER WHE REIN AT PAGE 8, IT HAS BEEN STATED THAT ALL THE CONTRIBUTIONS WERE PAI D DURING THE RELEVANT PREVIOUS YEAR WITH THE EXCEPTION OF MONTH OF MARCH WHICH WAS PAID IN ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 5 MAY, 2013. IT WAS SUBMITTED BY THE LD. AR THAT ALL THE AMOUNTS HAVE THUS BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. 7. IT WAS FURTHER SUBMITTED THAT IN THE PREVIOUS AY 2012-13, THE LD.CIT(A) HIMSELF HAS GRANTED THE RELIEF TO THE ASS ESSEE. IT WAS FURTHER SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS. JAIPUR VIDYUT VITRAN NIGAM LIMITED (DB ITA NOS. 278, 103, 280, 281, 301/2011 DATED 6.1.201 4) AND CIT VS. STATE BANK OF BIKANER & JAIPUR (D.B. ITA NO. 177/20 11). IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION SO MADE BY THE AO DESERVES TO BE DELETED. 8. GIVEN THAT THE CONTRIBUTIONS HAVE BEEN PAID BEF ORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, FOLLOWING THE DE CISION OF HONBLE RAJASTHAN HIGH COURT REFERRED SUPRA, THE ADDITION M ADE BY THE AO IS HEREBY DELETED. IN THE RESULT, GROUND NO. 6 IS ALLO WED. 9. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INTEREST OF RS. 56,539/- ON LATE PAYMENT OF TDS U/S 201 AND INTEREST OF RS. 721/- TOWARDS LATE PAYMENT OF ESI. IT WAS SUBMI TTED BY THE LD. AR THAT THESE INTEREST PAYMENT ON LATE DEPOSITS OF TAX ES IS COMPENSATORY IN NATURE AND NOT IN THE NATURE OF PENALTY/FINE AS HEL D BY THE AO AND THE SAID EXPENSES ARE DULY ALLOWABLE U/S 37(1) OF THE A CT. IT WAS FURTHER SUBMITTED THAT THE SAID INTEREST EXPENSES ARE NOT C OVERED UNDER THE SPECIFIC DISALLOWANCE OF SECTION 40(A) (II) OF THE ACT. 10. AS REGARDS THE INTEREST ON LATE DEPOSIT OF ESI CONTRIBUTION IS CONCERNED, THE HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. MYSORE ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 6 ELECTRICAL INDUSTRIES LTD. (1992) 196 ITR 884 (KARN ) HAS HELD THAT INTEREST SO PAID BY THE ASSESSEE WAS NOT IN THE NAT URE OF PENALTY AND THEREFORE, ALLOWABLE AS DEDUCTION IN THE HANDS OF T HE ASSESSEE. RESPECTIVELY FOLLOWING THE SAME, THE INTEREST OF RS . 721/- ON LATE PAYMENT OF ESI IS HEREBY ALLOWED. 11. AS FAR AS INTEREST ON LATE PAYMENT OF TDS U/S 2 01 (1A) IS CONCERNED, USEFUL REFERENCE CAN BE DRAWN TO THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN CASE OF FERRO ALLOYS CORPORATI ON LTD VS. CIT (1992) 196 ITR 406 (BOM) WHERE INTEREST PAYMENT U/S 201(1A) FOR FAILURE TO DEDUCT OR PAY TAX DEDUCTED AT SOURCE WAS HELD NOT DEDUCTIBLE. A SIMILAR VIEW HAS BEEN TAKEN BY THE MADRAS HIGH CO URT IN CASE OF CIT VS. CHENNAI PROPERTIES & INVESTMENT LTD., (1999) 23 9 ITR 435 (MAD) WHEREIN IT WAS HELD AS UNDER (HEAD NOTES): THE LIABILITY FOR DEDUCTION OF TAX ARISES BY REASO N OF THE PROVISIONS OF THE ACT. UNDER SECTION 201, THE CONSEQUENCE OF FAIL URE TO COMPLY WITH THE SAME RENDERS THAT PERSON LIABLE TO BE DEEMED AS AN ASSESSEE IN DEFAULT WITH ALL THE CONSEQUENCES ATTACHED THERETO. THE LIABILITY TO PAY INTEREST ON THE AMOUNT NOT DEDUCTED OR DEDUCTED, BU T NOT PAID IS DIRECTLY RELATED TO THE FAILURE TO DEDUCT OR REMIT THE AMOUNT. THE AMOUNT REQUIRED TO BE DEDUCTED IS THE AMOUNT PAYABL E AS INCOME-TAX. THE INTEREST PAID FOR THE PERIOD OF DELAY TAKES COL OUR FROM THE NATURE OF THE PRINCIPAL AMOUNT REQUIRED TO BE PAID BUT NOT PA ID WITHIN TIME. THE PRINCIPAL AMOUNT HERE WOULD BE THE INCOME-TAX AND T HE INTEREST PAYABLE FOR DELAYED PAYMENT IS THE CONSEQUENCE OF FAILURE T O PAY THE TAX AND IN THE CIRCUMSTANCES, IS IN THE NATURE OF A PENALTY TH OUGH NOT DESCRIBED AS SUCH IN SECTION 201(1A). THE FACT THAT THE INCOME-T AX REQUIRED TO BE REMITTED IS NOT INCOME-TAX PAYABLE BY THE ASSESSEE BUT IS ULTIMATELY FOR ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 7 THE BENEFIT OF AND TO THE CREDIT OF THE RECIPIENT O F THE INCOME ON WHICH THAT TAX IS PAYABLE, DOES NOT IN ANY MANNER ALTER T HE CHARACTER OF THE PAYMENT, NAMELY, ITS CHARACTER AS INCOME-TAX. THE I NTEREST PAID UNDER SECTION 201(1A), THEREFORE, WOULD NOT ASSUME THE CH ARACTER OF BUSINESS EXPENDITURE AND COULD NOT BE REGARDED AS A COMPENSA TORY PAYMENT. INCOME-TAX IS NOT ALLOWABLE AS BUSINESS EXPENDITURE . THE AMOUNT DEDUCTED AS TAX IS NOT AN ITEM OF EXPENDITURE. THE AMOUNT NOT DEDUCTED AND REMITTED HAS THE CHARACTER OF TAX AND HAS TO BE REMITTED TO THE STATE AND CANNOT BE UTILISED BY THE ASSESSEE FOR ITS OWN BUSINESS. THE SUPREME COURT IN THE CASE OF BHARAT COMMERCE & INDUSTRIES LTD. V. CIT [1998] 230 ITR 733/ 98 TAXMAN 151REJECTED THE A RGUMENT THAT RETENTION OF MONEY PAYABLE TO THE STATE AS TAX OR I NCOME-TAX WOULD AUGMENT THE CAPITAL OF THE ASSESSEE AND THE EXPENDI TURE INCURRED, NAMELY, INTEREST PAID FOR THE PERIOD OF SUCH RETENT ION, WOULD ASSUME THE CHARACTER OF BUSINESS EXPENDITURE. IT HELD THAT AN ASSESSEE COULD NOT POSSIBLY CLAIM THAT IT WAS BORROWING FROM THE S TATE THE AMOUNTS PAYABLE BY IT AS INCOME-TAX, AND UTILISING THE SAME AS CAPITALIZATION IN ITS BUSINESS, TO CONTEND THAT THE INTEREST PAID FOR THE PERIOD OF DELAY IN PAYMENT OF TAX AMOUNTED TO A BUSINESS EXPENDITURE. THEREFORE, THE INTEREST PAID UNDER SECTION 201(1A) COULD NOT BE AL LOWED AS BUSINESS DEDUCTION. 12. THE CONTENTION REGARDING SECTION 40(A)(II) IS A LSO NOT TENABLE AS THE SAME IS IN CONTEXT OF TAXES LEVIED ON THE PROFI TS OR GAINS OF BUSINESS AND NOT IN CONTEXT OF TAXES BY WAY OF TDS ON PAYMEN TS MADE BY THE ASSESSEE AND IN ANY CASE, THE INTEREST WILL PARTAKE THE CHARACTER OF THE PRINCIPAL WHICH IS NOT OTHERWISE ALLOWABLE. RESPEC TFULLY FOLLOWING THE DECISIONS REFERRED SUPRA, INTEREST ON LATE DEPOSIT OF TDS U/S 201(1A) ITA NO. 310/JP/2018 M/S SAND PLAST INDIA LIMITED, ALWAR VS. DCIT, ALWA R 8 CANNOT BE ALLOWED TO THE ASSESSEE AND THE SAME HAS RIGHTLY BEEN DISALLOWED BY THE AO. IN THE RESULT, GROUND NO. 7 IS PARTLY ALLOWED. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 24/07/2018. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S SAND PLAST INDIA LIMITED, ALWAR 2. IZR;FKHZ@ THE RESPONDENT- DCIT, ALWAR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 310/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR