AMFORGE INDUSTRIES LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 3666/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0439 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 143(3); 142(1); 37(1)

Judgement Text

1 ITA 3666/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A.NO.3666/MUM/2014 (ASSESSMENT YEAR : 2007-08 ) M/S AMFORGE INDUSTRIES LTD 1104A, RAHEJA CHAMBERS NARIMAN POINT, MUMBAI-21 PAN : AAACA8756A VS DCIT, CIR.3(1),MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI B.V. JHAVERI RESPONDENT BY SHRI RAJAT MITTAL DATE OF HEARING 27 -07-2017 DATE OF PRONOUNCEMENT 16- 08-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT|(A)-5, MUMBAI DATED 20-03-2014 AND IT PERTAINS TO AY 2007-08. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE FORGINGS, F ILED ITS RETURN OF INCOME FOR AY 2007-08 ON 31-10-2007 DECLARING NET LOSS OF RS.1 ,41,01,036. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143 (2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, AUTHORIZED RE PRESENTATIVE OF THE ASSESSEE APPEARED AND FILED NECESSARY DETAILS, AS CALLED FOR . THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30-12-2009 DETERMINING TOTA L INCOME AT 2 ITA 3666/MUM/2014 RS.2,87,52,890 INTERALIA MAKING CERTAIN ADDITIONS T OWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A, PENALTY PAID ON INTEREST ON DELAYED PAYMENT OF EPF AND WRITE OFF OF SUNDRY BALANCES AND CREDITORS, ETC. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 3. BEFORE CIT(A), ASSESSEE FILED ELABORATE WRITTEN SUB MISSIONS CHALLENGING ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF EX PENDITURE U/S 14A, DISALLOWANCE OF PENALTY AND INTEREST ON DELAYED PAY MENT OF PROVIDENT FUND DUES, AND OTHER ADDITIONS MADE BY THE AO INCLUDING DISALLOWANCE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPREC IATION AGAINST LONG TERM AND SHORT TERM CAPITAL GAINS. THE CIT(A), AFTER CO NSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED APPEAL, WHEREIN HE HAS CONFIRMED ADDITIONS MADE TOWARDS INTEREST PAID ON LATE PAYMEN T OF EPF. HOWEVER, HE HAS NOT ADJUDICATED GROUNDS 9 & 10 RAISED BY THE AS SESSEE CHALLENGING THE ACTION OF AO OF NOT SETTING OFF BROUGHT FORWARD LOS SES AND UNABSORBED DEPRECIATION OF EARLIER YEARS AGAINST ASSESSED INCO ME. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF RS.9,36,676 BEING INTEREST PAID UNDER THE PF ACT. THE AO DISALLOWED INTEREST PAID FOR DELAYED REMITTANCE OF EPF ON THE GROUND TH AT INTEREST PAYABLE U/S 7Q 3 ITA 3666/MUM/2014 OF THE EMPLOYEES PROVIDENT FUND ACT, 1952 IS PENA L IN NATURE, THEREFORE, IT CANNOT BE ALLOWED AS EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSES SEE CLAIMS THAT INTEREST PAID ON DELAYED REMITTANCE OF EPF IS NOT PENAL IN NATURE , BUT IT IS COMPENSATORY IN NATURE AND, THEREFORE, IT IS ALLOWABLE U/S 37(1) OF THE ACT. 5. HAVING HEARD BOTH THE PARTIES AND CONSIDERED MATERI AL ON RECORD, WE FIND THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE O F CIT VS MYSORE ELECTRICAL INDUSTRIES LTD (1992) 196 ITR 885 (KAR) HAS CONSIDE RED SIMILAR ISSUE AND AFTER ANALYZING THE PROVISIONS OF SECTION 7Q OF EMPLOYEES PROVIDENT FUND & MISCELLANEOUS PROVISIONS ACT, 1952 HELD THAT INTERE ST PAID UNDER THE EPF ACT IS COMPENSATORY IN NATURE AND NOT A PENALTY; HENCE, IT WAS DEDUCTIBLE. THEREFORE, WE ARE OF THE VIEW THAT THE INTEREST PAI D U/S 7Q OF THE EPF ACT, 1952 IS AN EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND IS ALLOWABLE U/S 37(1) OF THE INCOME-TAX ACT, 1961. THE CIT(A), WITHOUT APPRECIATING THE FACTS, CONFIRMED ADDITIONS MADE BY THE AO. HENCE, WE REVERSE THE FINDINGS OF THE CIT( A) AND DIRECT THE AO TO ALLOW INTEREST PAID UNDER THE PROVIDENT FUND ACT AS DEDUCTIBLE U/S 37(1) OF THE INCOME-TAX ACT, 1961. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AGAINST LONG 4 ITA 3666/MUM/2014 TERM AND SHORT TERM CAPITAL GAIN. THE LD.AR OF THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THE CIT(A) DID NOT ADJUDICAT E GROUNDS 9 & 10 RAISED CHALLENGING THE AOS ACTION OF NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEARS A GAINST ASSESSED INCOME. WE FIND THAT THE CIT(A) DISMISSED GROUNDS 9 & 10 RA ISED BY THE ASSESSEE WITHOUT GIVING ANY FINDING AS TO THE ALLOWABILITY O F BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEARS A GAINST ASSESSED INCOME BY HOLDING THAT THE RELIEF GRANTED ON VARIOUS GROUNDS EXCEEDED ASSESSED INCOME AND AFTER GIVING APPEAL EFFECT THE INCOME WOULD FIN ALLY BE A LOSS AND AS SUCH, THE GROUND RAISED WOULD BECOME REDUNDANT. 7. WE DO NOT FIND ANY MERITS IN THE FINDINGS OF THE CI T(A) FOR THE REASON THAT THE QUESTION OF ALLOWABILITY OF BROUGHT FORWARD BUS INESS LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEARS HAS TO BE ADJUDICATED IN THE LIGHT OF THE PROVISIONS OF SECTION 72A OF THE INCOME-TAX ACT, 1961 WITHOUT GOING INTO THE FACT THAT WHETHER THE ASSESSED INCOME HAS RESULTED IN LOSS OR INCOME. THE CIT(A) WITHOUT ASSIGNING ANY REASONS, SIMPLY DISMISSED GRO UND RAISED BY THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE CIT(A) IN THE LIGHT OF THE GROUNDS RAISED BY THE AS SESSEE IN GROUNDS 9 & 10 BEFORE CIT(A). THEREFORE, WE SET ASIDE THE ISSUE T O THE FILE OF THE CIT(A) AND DIRECT HIM TO ADJUDICATE THE SAME, AS PER LAW AFTER GIVING OPPORTUNITY OF 5 ITA 3666/MUM/2014 HEARING TO THE ASSESEE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH AUGUST, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 16 TH AUGUST, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI