M/s Fitwel Tools & Forgings Private Limited , Tumkur V. Assistant Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 449/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2361 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 15-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Keywords: Depreciation; Capital expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NO.449/BANG/2018 ASSESSMENT YEAR : 2014-15 M/S FITWEL TOOLS & FORGINGS PVT. LTD., NO.5, KHT COMPLEX, ANTHARASANAHALLI, TUMKUR-572 106. PAN AAACF 2319 J VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI BHARATH L, C.A RESPONDENT BY : DR. P.V PRADEEP KUMAR, ADDL. CIT DATE OF HEARING : 03.09.2019 DATE OF PRONOUNCEMENT : 04.09.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 18/12/2017 PASSED BY LD CIT(A)-III, BANGALORE AND I T RELATES TO ASST. YEAR 2014-15. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD CIT(A) RENDERED ON THE FOLLOWING TWO ISSUES. A) DISALLOWANCE OF RS.2.65 LAKHS RELATING TO INTEREST PAYABLE ON SERVICE TAX, EXCISE DUTY AND VAT B) DISALLOWANCE OF TERM LOAN PROCESSING FEE OF RS.5.02 LAKHS. ITA NO.449/BANG/2018 PAGE 2 OF 7 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE OF ENGINEERING GOOD S. THE FIRST ISSUE RELATES TO DISALLOWANCE OF INTEREST OF RS.2.6 5 LAKHS PAID ALONG WITH SERVICE TAX, EXCISE DUTY, VAT ETC. THE AO TOO K THE VIEW THAT THE ASSESSEE HAS NOT CLAIMED SERVICE TAX, EXCISE DU TY AND VAT AS PART OF ITS EXPENSES IN THE PROFIT AND LOSS ACCOUNT . FURTHER THE AO TOOK THE VIEW THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF BHARAT INDUSTRIES LTD., VS. CIT 230 ITR 733, IN WHICH IT WAS HELD THAT THE INTEREST PAID FOR COMMITTING A NY FAULT IN PAYMENT OF ADVANCE TAX IS NOT PERMISSIBLE DEDUCTION U/S 37 OF THE ACT, WOULD APPLY TO THE INTEREST EXPENDITURE CLAIME D BY THE ASSESSEE. ACCORDINGLY HE DISALLOWED THE INTEREST A MOUNT OF RS.2.64 LAKHS PAID ALONG WITH SERVICE TAX, EXCISE DUTY AND VAT. THE LD CIT(A) ALSO CONFIRMED THE SAME. 4. AT THE TIME OF HEARING, THE LD AR SUBMITTED THAT THE SERVICE TAX, EXCISE DUTY AND VAT, EVEN THOUGH NOT ROUTED TH ROUGH PROFIT AND LOSS ACCOUNT, ARE ALLOWABLE AS EXPENDITURE. HE SUBMITTED THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN T HE CASE OF BHARAT INDUSTRIES (SUPRA) WAS RELATED TO INCOME-TAX PAYMENTS AND SINCE INCOME-TAX PAYMENT WAS NOT ALLOWABLE DEDUCTIO N, THE HONBLE SUPREME COURT HELD THAT THE INTEREST PAID ON INCOME -TAX SHALL NOT BE ALLOWABLE. ON THE CONTRARY, THE LD AR PLACED HI S RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE C ASE OF MAHALAKSHMI SUGAR MILLS VS. CIT, 123 ITR 429, WHER EIN IT WAS HELD THAT THE INTEREST PROVIDED FOR U/S 3(3) OF UP SUGAR CANE CESS ACT IS IN THE NATURE OF COMPENSATION PAID TO GOVT. FOR DELAY IN PAYMENT OF CESS AND IT WOULD NOT BE DESCRIBED AS PE NALTY FOR ITA NO.449/BANG/2018 PAGE 3 OF 7 INFRINGEMENT OF LAW. THE LD AR ALSO PLACED HIS REL IANCE ON THE DECISION RENDERED BY CO-ORDINATE BENCH IN THE CASE OF VELANKANI INFORMATION SYSTEMS LTD., (2018) 97 TAXMANN.COM 599 [ITAT] WHEREIN IT WAS HELD THAT INTEREST PAID ON DELAYED REMITTANCE OF SERVICE TAX WAS ONLY COMPENSATORY IN NATURE AND WOU LD NOT BE IN THE NATURE OF PENALTY ATTRACTING THE EXPLANATION TO SEC. 37(1). 5. WE HEARD THE LD DR ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MAHALAKSHMI SUGAR MILLS CO. (SUPRA) AND ALSO BY THE DECISION RENDERED BY C O-ORDINATE BENCH IN THE CASE OF VELANKANI INFORMATION SYSTEMS LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE PAYMENT OF INTEREST FOR D ELAYED REMITTANCE OF SERVICE WAS ONLY COMPENSATORY IN NATURE. THERE IS NO DISPUTE THAT THE SERVICE TAX, EXCISE DUTY AND VAT PAYMENTS ARE ALLOWABLE AS DEDUCTION, IF IT IS CLAIMED THROUGH THE PROFIT A ND LOSS ACCOUNT. HENCE THE INTEREST PAID FOR DEFAULT IN PAYMENT OF A BOVE SAID ITEMS WOULD ONLY BE COMPENSATORY IN NATURE. IN THIS VIEW OF THE MATTER, THE CLAIM OF THE ASSESSEE COULD NOT BE DENIED, MERE LY FOR THE REASON THAT THE SERVICE TAX, EXCISE DUTY AND VAT WERE NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISIONS, WE SET ASIDE THE ORDER PASSED BY LD CIT( A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE DEDUCTION. 6. THE NEXT ISSUE RELATES TO DISALLOWANCE OF TERM L OAN PROCESSING FEES. ITA NO.449/BANG/2018 PAGE 4 OF 7 7. THE AO NOTICED THAT THE ASSESSEE HAS INCURRED TE RM LOAN PROCESSING FEE OF RS.5.91 LAKHS AND CLAIMED THE SAM E AS DEDUCTION. THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS RE LATING TO TERM LOAN BORROWED BY THE ASSESSEE. HOWEVER, THE ASSESS EE DID NOT FURNISH THE DETAILS CALLED FOR BY THE AO. THE AO T OOK THE VIEW THAT THE TERM LOAN IS ALWAYS TAKEN FOR THE PURPOSE OF AC QUIRING ASSET. ACCORDINGLY THE AO TOOK THE VIEW THAT THE TERM LOAN PROCESSING CHARGES PAID BY THE ASSESSEE WAS RELATED TO THE ACQ UISITION OF ASSETS AND HENCE THE SAME NEEDS TO BE CAPITALIZED. ACCORDI NGLY HE DISALLOWED THE CLAIM OF TERM LOAN PROCESSING CHARGE S OF RS.5.91 LAKHS. SINCE THE AO HELD THAT THE ABOVE SAID AMOUN T IS TO BE CAPITALIZED, HE ALLOWED DEPRECIATION THEREON. ACCO RDINGLY THE AO DISALLOWED NET AMOUNT OF RS.5.02 LAKHS. THE SAME W AS CONFIRMED BY THE LD CIT(A). 8. THE LD AR SUBMITTED THAT EVEN THOUGH THE ASS ESSEE DID NOT FURNISH THE DETAILS BEFORE THE AO, YET THE ASSESSEE FURNISHED ALL THE DETAILS RELATING TO TERM LOAN BEFORE LD CIT(A). HE SUBMITTED THAT THE ASSESSEE HAD APPLIED FOR TERM LOAN FOR THE PURP OSE OF ACQUIRING AN ASSET. HOWEVER, SINCE THE DISBURSEMENT OF TERM LOAN WAS GETTING DELAYED, THE ASSESSEE PURCHASED THE ASSET BY USING OTHER FUNDS AND ALSO PUT IT FOR BUSINESS USE. SUBSEQUENTLY THE TER M LOAN WAS RELEASED BY THE BANK AND THE PROCEEDS WERE USED BY THE ASSESSEE FOR GENERAL BUSINESS PURPOSES. ACCORDINGLY, THE LD AR SUBMITTED THAT THE TERM LOAN WAS NOT ACTUALLY USED FOR THE PU RPOSE OF ACQUIRING THE ASSET AND FURTHER THE PROCESSING FEE WAS PAID TO THE BANK SUBSEQUENT TO THE ACQUISITION OF ASSET. ACCOR DINGLY HE ITA NO.449/BANG/2018 PAGE 5 OF 7 CONTENDED THAT THE PROCESSING FEE CANNOT BE CONSIDE RED AS CAPITAL EXPENDITURE. 9. THE LD AR FURTHER SUBMITTED THAT THE ASSESSEE HA S FURNISHED THESE EXPLANATIONS BEFORE THE LD CIT(A). HE SUBMIT TED THAT THE ASSESSEE ALSO FURNISHED A CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT TO SUPPORT ITS CLAIM OF UTILIZATION OF F UNDS. HOWEVER, THE LD CIT(A) DID NOT CONSIDER AND ADDRESS THESE FA CTUAL SUBMISSIONS. ACCORDINGLY, HE PRAYED THAT THE DISALL OWANCE CONFIRMED BY LD CIT(A) MAY BE DELETED. 10. ON THE CONTRARY, THE LD DR SUBMITTED THAT THE I NTENTION OF THE ASSESSEE FOR TAKING TERM LOAN WAS TO ACQUIRE AN ASSET. HOWEVER, THE ASSESSEE HAS CLAIMED TO HAVE ACQUIRED THE ASSET BY USING OTHER FUNDS. HE SUBMITTED THAT THE USE OF OTHER FUNDS IS ONLY A TEMPORARY SHIFTING OF FUNDS, SINCE THE ASSESSEE HAS ULTIMATELY AVAILED THE TERM LOAN. THUS, THE TERM LOAN SHOULD BE CONSIDERED AS THE REAL SOURCE FOR ACQUIRING THE ASSET AND HENCE, PROCESSING FEE IS RELATED TO THE ACQUISITION OF ASSET AND HENCE THE S AME SHOULD BE CAPITALIZED. 11. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE LD CIT(A), SINCE THE LD CIT(A) HAS NOT CONSIDERED THE EXPLANAT IONS FURNISHED BY THE ASSESSEE WITH REGARD TO USE OF FUNDS FOR THE PURCHASE OF ASSETS AND UTILIZATION OF TERM LOAN. ACCORDINGLY, WITHOUT EXPRESSING ANY OPINION ON THE CONTENTIONS OF THE PARTIES, WE S ET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE S AME TO HIS FILE FOR ITA NO.449/BANG/2018 PAGE 6 OF 7 EXAMINING IT AFRESH BY DULY CONSIDERING THE EXPLANA TIONS FURNISHED BY THE ASSESSEE. AFTER AFFORDING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE, THE LD CIT(A) MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2019. SD/ - (N.V VASUDEVAN) VICE PRESIDENT SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 4 TH SEPTEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NO.449/BANG/2018 PAGE 7 OF 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..