ACIT, New Delhi V. Mrs. Noida Medicare Centre Ltd., New Delhi

ITA 4894/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74154 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T R TALWAR
• Assessee Lawyers: SAMEER SHARMA
• Keywords: Depreciation
• Section: 142(1); 234B; 37

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI S. V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 4894/DEL/2012 (ASSESSMENT YEAR: 2009 - 10) ACIT CIRCLE - 37(1), ROOM NO. 401, N - BLOCK, VIKAS BHAWAN, I.P. ESTATE, NEW DELHI VS. NOIDA MEDICARE CENTER LTD., 1, VIMHANS INSTITUTIONAL AREA, NEHRU MARG, NEW DELHI 110065 PAN AAACN0980B (APPELLANT) (RESPONDENT) C.O. 114/DEL/2013 (IN ITA NO. 4894/DEL/2013) (ASSESSMENT YEAR: 2009 - 10) NOIDA MEDICARE CENTER LTD., 1, VIMHANS INSTITUTIONAL AREA, NEHRU MARG, NEW DELHI 110065 PAN AAACN0980B VS. ACIT CIRCLE - 37(1), ROOM NO. 401, N - BLOCK, VIKAS BHAWAN, I.P. ESTATE, NEW DELHI (APPELLANT) APPELLANT BY : T.R. TALWAR, ADV RESPONDENT BY: SAMEER SHARMA, SR. DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION PREFERRED BY THE ASSESSEE ARE AGAINST THE ORDER OF LD CIT(A) - XXVIII, NEW DELHI DATED 10. 07.2012 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE GROUNDS RAISED BY THE REVENUE I S AS FOLLOWS: - 1. THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE A.O. DISALLOWING THE CLAIM OF 100% DEPRECIATION ON CUSTOMS DUTY RELATED TO PAGE NO. 2 IMPORT OF PLANT AND MACHINERY MADE BY THE ASSESSEE IN THE YEAR 1989 AND 1993. 2. ALTERNATIVELY THE LD CIT(A) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE A.O. NOT APPRECIATING THE FACT THAT THE LIABILITY TO PAY CUSTOMS DUTY CRYSTALLIZED ONLY IN THE YEAR 2008 - 09 AND THE SAME SHOULD BE CAPITALIZED IN THAT YEAR ITSELF, ALLOWING NORMAL RATE OF 15% DEPRECIATION AS AGAINST 100% CLAIMED BY THE ASSESSEE. 3. THE LD CIT(A) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE A.O. NOT APPRECIATING THE FACT THAT THE CUSTOMS DUTY PAID BY THE ASSESSEE IN PENAL IN NATURE AND HENCE, NOT ALLOWABLE U/S 37 OF THE I.T. ACT, 1961. 4. THE LD CIT(A) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE A.O. NOT APPRECIATING THE FACT THAT THE CUSTOMS DUTY PAID BY THE ASSESSEE I S RELATED TO IMPORT OF PLANT AND MACHINERY MADE BY THE ASSESSEE IN YEAR 1989 AND 1993 AND HENCE, THE SAME SHOULD BE CAPITALIZED IN THOSE YEARS AND NOT IN THE RELEVANT A.Y. 2009 - 10. 5. THE LD. CIT(A) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE A.O. N OT APPRECIATING THE FACT THAT THE 100% DEPRECIATION CLAIMED BY THE ASSESSEE ON CUSTOMS DUTY WAS IN UTTER DISREGARD TO THE PROVISIONS OF INCOME TAX ACT, 1961. 6. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 7. THE APPELLANT CAN CRAVES TO ADD, AMEND OR MODIFY THE GROUNDS FO APPEAL AT ANY TIME. 3. THE GROUND RAISED IN THE CROSS - OBJECTION BY THE ASSESSEE IS AS FOLLOWS: - (I) IN NOT CONSIDERING THAT THE LIABILITY OF CUSTOM DUTY RELATED TO THE ACCOUNTING PERIOD 1989 - 90 AND 1992 - 93 WHEN THE EQUIPMENT WAS IMPORTED/ INSTALLED WHICH EVENTUALLY ENHANCED THE COST OF EQUIPMENT LEADING TO THE CLAIM OF DEPRECATION ON IT FROM THOSE YEARS. (II) IN NO RE - DETERMINING THE WRITTEN DOWN VALUE OF ASSETS, SO CAPITALIZED IN 1989 - 90 AND 1992 - 93, INCLUDING CUSTO M DUTY AND ALLOWING DEPRECATION ON ITS DURING THE YEAR ACCORDINGLY. (III) IN NOT ALLOWING RELIEF U/S 234B & 234 C AND 234D OF THE IT ACT KEEPING IN VIEW THE FACT THAT THE ASSESSEE WAS UNDER NO OBLIGATION ON THE DATE OF ALLEGED DEFAULT TO PAY ADVANCE TAX A S PER THE PROVISIONS OF SEC 208 OF THE IT ACT ON THE ADDITION SO MADE. 4 . THE SUBSTANTIVE QUESTION , WE NEED TO ANSWER IN THIS MATTER IS THAT IN WHICH ASSESSMENT YEAR THE CUSTOM DUTY IS LEVIABLE ON IMPORT OF HOSPITAL EQUIPMENT BY THE ASSESSEE CAN BE CAPIT ALIZED AND THE DEPRECIATION CAN BE CLAIMED BY IT . THE ASSESSEE IS A HOSPITAL AND DIAGNOSTIC CENTER AND EARNS INCOME UNDER THE HEAD BUSINESS AND PROFESSION . THE ASSESSEE IMPORTED HOSPITAL EQUIPMENT S VALUED AT RS. 2,75,11,988/ - DURING THE YEARS 1988 - 89 AND 1992 - 93 WITHOUT PAYMENT OF CUSTOMS DUTY ON THE BASIS OF CUSTOMS DUTY EXEMPTION CERTIFICATE (HEREIN AFTER REFERRED TO CDEC) ISSUED BY THE DIRECTOR GENERAL OF HEALTH SERVICES (HEREIN PAGE NO. 3 AFTER REFERRED AS DGHS) . THE EQUIPMENT THUS IMPORTED WAS CAPITALIZED BY THE COMPANY ON THE ACTUAL VALUE OF THE EQUIPMENT PAID BY THE COMPANY AND THE DEPRECIATION WAS BEING CLAIMED ON THE SAID EQUIPMENT FROM YEAR TO YEAR AT THE PRESCRIBED RATE AS PER THE INCOME TAX ACT, 1961 (HER EIN AFTER THE ACT) . SUBSEQUENTLY, DGHS FOUND THAT THE IMPORTER /ASSESSEE HAD FAILED TO FULFILL THE ESSENTIAL CONDITION STIPULATED IN THE NOTIFICATION OF 64/68 OF THE CUSTOMS DEPARTMENT DATED 01.03.1968 FOR RETAINING CDECS FOR IMPORT OF HOSPITAL EQUIPMENTS / SPARES AND ACCORDINGLY WITHDREW THE CUSTOM DUTY EXEMPTION CERTIFICATE GRANTED TO THE HOSPITAL . THE ESSENTIAL CONDITION TO RETAIN THE CDEC WAS THAT IT WOULD PROVIDE FREE TREATMENT TO 40% OF OPD PATIENTS. ON WITHDRAWAL OF THE EXEMPTION CERTIFICATE (CDEC) T HE CUSTOM AUTHORITIES LEVIED RS. 3,78,66,864/ - FROM THE ASSESSEE AS CUSTOM S DUTY FOR THE EQUIPMENT IMPORTED IN 1988 - 89 AND IN 1992 - 93 ; AND WHICH WAS LATER REDUCED BY THE COMMISSIONER OF CUSTOMS, NEW DELHI TO RS. 1,10,04,795/ - ALONG WITH A FINE OF RS. 10,000/ - AND RS. 5,000/ - BY AN ORDER DATED 28.10.2004 . AGGRIEVED BY THE SAID ORDER OF COMMISSIONER OF CUSTOMS THE ASSESSEE / HOSPITAL PREFERRED AN APPEAL BEFORE THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WHO VIDE ORDER DATED 14 .07.2007 DISMISSED THE APPEAL. THE SLP PREFERRED BY THE ASSESSEE BEFORE THE SUPREME COURT WAS ALSO DISMISSED ON 25.02.2008. THEREAFTER, THE ASSESSEE REMITTED THE ENTIRE CUSTOM DUTY OF RS. 1,10,04,795/ - DURING OCTOBER, NOVEMBER AND DECEMBER 2008 ALONG WITH AN INTEREST OF RS. 9,52,161/ - . 5. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 (RELEVANT ASSESSMENT YEAR) WHICH IS UNDER CONSIDERATION ON 29.09.2009 DECLARING A TOTAL INCOME O F RS. 65,16,324/ - . SINCE THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS, NOTICES WERE ISSUED U/S 143(2) OF THE ACT AND U/S 142(1) TO THE HOSPITAL/ ASSESSEE; AND THE ASSESSEE S RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR REFLECTED TOTAL GROSS RECEIPT O F RS. 25,04,54,250/ - WITH A NET PROFI T OF RS. 1,61,38,487/ - . THE ASSESSING OFFICER OBSERVED WHILE PERUSING THE FIXED ASSET SCHEDULE IN THE BALANCE SHEET OF THE ASSESSEE THAT A NEW ADDITION OF PLANT AND MACHINERY WORTH RS. 1,10,04,795/ - AND IT HAS CLAIMED 1 00% DEPRECATION ON IT. THE ASSESSEE WAS ASKED TO EXPLAIN THE PAGE NO. 4 CLAIM MADE BY IT IN RESPECT TO THE DEPRECIATION OF 100% ON THE SAID ASSET OF RS. 1,10,04,795/ - . 6. THE ASSESSEE EXPLAINED THAT EVEN THOUGH THE CUSTOM DUTY WAS PAID DURING THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR 2009 - 10, THE LIABILITY TO PAY THE CUSTOMS DUTY RE LATED BACK TO THE ACCOUNTING PERIOD 1989 - 90 AND 1992 - 93 WHEN THE EQUIPMENT WAS IMPORTED, THUS RAISING THE COST OF MACHINERY TO THE EXTENT OF CUSTOM DUTY PAID DURING THE YEAR. THER EFORE, THE ASSESSEE CLAIMED DEPRECIATION ON THE ENHANCED COST OF MACHINERY FROM YEAR TO YEAR BASIS SINCE 1989 - 90 AND 1992 - 93. BASED ON THE SAME, THE W DV BECAME NEGLIGIBLE, HENCE, THE WHOLE AMOUNT OF DEPRECIATION WAS WRITTEN OFF IN THE ASSESSMENT YEAR 2009 - 10 ON THE CUSTOM DUTY PAID DURING THE YEAR. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES AFORESAID CONTENTION AND HELD THAT THE CUSTOM DUTY IMP OSED ON THE ASSESSEE BY THE CUSTOM DEPARTMENT WAS OF PENAL IN NATURE BECAUSE THE ASSESSEE HAD VIOLATED THE ESSENTIAL CONDITION S STIPULATED TO ENJOY AND RETAIN THE ELIGIBILITY OF CUSTOM DUTY EXEMPTION GRANTED TO IT AND THEREFORE THE ASSESSING OFFICER HELD T HAT CUSTOMS REMITTED WAS, THEREFORE, NOT AN ALLOWABLE EXPENDITURE UNDER EXPLANATION APPENDED TO SECTION 37 OF THE ACT. HE, THEREFORE DISALLOWED THE ENTIRE AMOUNT OF CUSTOM DUTY TO THE TUNE OF RS. 1,10,04,795/ - AND ADDED THE SAME TO THE ASSESSEES RETURNED INCOME. ALTERNATIVELY, A FINDING WAS MADE BY THE ASSESSING OFFICER THAT SINCE THE ASSESSEE HAS PAID THE CUSTOM S DUTY IN THE FY 2008 - 09 AND, THEREFORE IT HAS TO BE CAPITALIZED IN THE FY 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10 AND DEPRECIATION OF 15% CAN BE ALLOWED IN THE CURRENT YEAR WHICH WOULD RESULT IN AN ADDITION OF RS. 93,54,076/ - ( 1,10,04,795 ( - ) 15% THEREOF I.E. RS. 16,50,719/ - ) TO THE RETURNED INCOME. HOWEVER, FINALLY THE ASSESSING OFFICER HAS OPTED FOR THE ENTIRE ADDITION WITHOUT DEPRECIATION OF EVEN 15% ALTERNATIVELY COMPUTED BY HIM . THUS, THE ASSESSING OFFICER ADDED THE AMOUNT OF RS. 1,10,04,795/ - TO THE RETUNED INCOME. 7 . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A) WHO HELD THAT THE ENHANCED COST OF THE EQUIPMENT THAT WAS IMPORTED SHOULD THEREFORE BE TAKEN INTO CONSIDERATION FROM THE PAGE NO. 5 ASSESSMENT YEAR 2005 - 06 WHEN THE COMMISSIONER OF CUSTOMS ( IMPORT & GENERAL) PASSED AN ORDER ON 29.10.2004 TO THE ASSESSEE TO REMIT AS CUSTOMS DU TY AN AMOUNT OF RS. 1,10,04,795/ - AND D EPRECIATION SHOULD BE ALLOWED ACCORDINGLY FROM THAT YEAR ONWARD S AND WDV REWORKED FOR THE ASSESSMENT YEAR 2005 - 06 . THE ASSESSING OFFICER WAS DIRECTED TO REWORK AND ALLOW THE DEPRECATION ACCORDINGLY. AGGRIEVED BY THE S AID ORDER OF THE LD CIT(A) BOTH THE REVENUE AND THE ASSESSEE ARE BEFORE US. 8 . THE REVENUE HAS PREFERRED AN APPEAL AND THE ASSESSEE HAS PREFERRED A CROSS OBJECTION. 9 . ACCORDING TO THE SR. DR THE ASSESSEE HAS IMPORTED THE MACHINERY WITHOUT PAYING ANY CUSTOM DUTY AND IT WAS BOUND TO FOLLOW SCRUPULOUSLY THE CONDITION S SPECIFIED IN NOTIFICATION DATED 01.03.1988. HOWEVER, THE ASSESSEE VIOLATED THE CONDITION, THEREFORE, THE CUSTOM DUTY EXEMPTION WAS WITHDRAWN BY THE DGHS. THEREF ORE THE LEVY OF CUSTOM DUTY WAS CLEARLY PENAL IN NATURE AS THE ASSESSEE VIOLATED THE LAW AND THEREFORE THE ASSESSEE WAS PENALIZED BY WAY OF IMPOSITION OF CUSTOM DUTY AND THE ASSESSING OFFICER RIGHTLY HELD THAT THE CUSTOM DUTY HAS BEEN PAID FOR VIOLATION OF LAW AND NOT IN THE NORMAL COURSE OF IMPORTING OF MACHINERY ; AND SINCE ANY AMOUNT PAID FOR VIOLATION OF LAW IS NOT AN ALLOWABLE EXPENDITURE U/S 37 OF THE ACT , THE ASSESSING OFFICER RIGHTLY DISALLOWED THE SAID CUSTOM DUTY PAYMENT AND ADDED BACK TO THE INCOM E OF THE ASSESSEE . THEREFORE THE LD CIT(A) ERRED IN HOLDING THAT AMOUNT PAID AS CUSTOMS DUTY SHOULD BE TAKEN INTO CONSIDERATION FROM ASSESSMENT YEAR 2005 - 06 AND DEPRECIATION SHOULD BE ALLOWED ACCORDINGLY FROM THE SAID ASSESSMENT YEAR. ON THE OTHER HAND THE LD AR CONTENDED THAT THE LIABILITY OF CUSTOM DUTY RELATED TO THE ACCOUNTING PERIOD 1989 - 90 AND 1992 - 93 WHEN THE EQUIPMENT WAS IMPORTED WHICH EVENTUALLY ENHANCED THE COST OF EQUIPMENT LEADING TO THE CLAIM OF DEPRECIATION ON IT FROM THO SE YEARS AND ACCORDING TO THE AR, THE ASSESSING OFFICER AND THE CIT(A) ERRED IN NOT RE - DETERMINING THE WDV OF EQUIPMENT , WHICH WAS CAPITALIZED IN 1989 - 90 AND 1992 - 93 AFTER INCLUDING THE CUSTOM DUTY PAID AND IN NOT ALLOWING THE DEPRECIATION FROM THAT YEAR O F IMPORT. PAGE NO. 6 10. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RECORDS AND HAVE GONE THROUGH THE CITATIONS CITED BEFORE US. WE FIND THAT THE ASSESSEE IS A HOSPITAL AND IT HAS IMPORTED EQUIPMENT FROM ABROAD IN THE YEAR 1989 - 90 AND 1992 - 93 . FROM THE SAID IMPORT NO CUSTOMS DUTY WAS PAID BECAUSE DGHS HAS GRANTED TO THE ASSESSEE CDEC. HOWEVER, THE DGHS FOUND THAT ASSESSEE HOSPITAL WAS NOT PROVIDING 40% FREE TREATMENT TO OPD PATIENTS AND SINCE IT WAS AN ESSENTIAL CONDITION FOR RETENTION OF CDEC, HE WITHDREW TH E CDEC GRANTED TO IT. IN THE SAID CIRCUMSTANCE, THE CUSTOMS AUTHORITIES SLAPPED LEVY OF CUSTOMS DUTY ON THE SAID IMPORTED EQUIPMENTS. VIDE ORDER DATED 29.10.2004 THE COMMISSIONER CUSTOMS ORDERED ASSESSEE TO REMIT AN AMOUNT OF RS. 1,10,04,795/ - . THE ASSESSE E FAILED TO GET ANY RELIEF FROM THE APPEAL PREFERRED BEFORE THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL OR FROM THE HONBLE SUPREME COURT OF INDIA AND EVENTUALLY IN O CTOBER/ NOVEMBER/ DECEMBER 2008, THE ASSESSEE REMITTED THE ENTIRE CUSTOMS DUTY TO THE TUNE OF RS. 1,10,04,795/ - AND AN INTEREST OF RS. 9,52,161/ - . THE CONTENTION OF THE LD DR THAT LEVY OF CUSTOMS DUTY WAS PENAL IN NATURE CANNOT BE COUNTEN E NCED BECAUSE THE CUSTOMS DUTY WAS PAID BY THE ASSESSEE ON A C COUNTS OF ITS FAILURE TO COMPLY WITH T HE CONDITION STIPULATED FOR CONTINUED ENJOYMENT OF THE BENEFIT OF CDEC. THEREFORE THE LEVY OF THE CUSTOMS DUTY CANNOT BY ANY STRETCH OF IMAGINATION BE TERMED AS PENAL IN NATURE BUT IT IS COMPENSATORY IN NATURE . SINCE THE LEVY OF CUSTOMS DUTY IS OF A COMPEN SATORY NATURE, IT IS AN ALLOWABLE EXPENDITURE. THE LD CIT(A) HAS THEREFORE RIGHTLY HELD THAT IN THE INSTANT CASE, THE OBLIGATION TO PAY THE CUSTOMS DUTY OF RS. 1,10,04,795 AND INTEREST AROSE FOR THE FIRST TIME ON 28.10.2004, RELEVANT TO THE ASSESSMENT YEAR 2005 - 06, FOLLOWING THE ORDERS OF THE COMMISSIONER, CUSTOMS AND CENTRAL EXCISE DATED 28.10.2004. THEREFORE THE LD CIT(A) HAS RIGHTLY HELD THAT THE ENHANCED COST OF THE EQUIPMENT SHOULD BE TAKEN INTO CONSIDERATION FROM THE ASSESSMENT YEAR 2005 - 06 ONWARDS A ND DEPRECIATION ALSO SHOULD BE ALLOWED ACCORDINGLY FROM ASSESSMENT YEAR 2005 - 06 ONWARDS AND WDV TO BE REWORKED FOR THE RELEVANT ASSESSMENT YEAR. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CIT(A) AND THEREFORE CONFIRM THE SAME AND DISMISS THE APPEA L PREFERRED BY THE REVENUE AND CO FILED BY THE ASSESSEE ABOUT THIS ISSUE. PAGE NO. 7 11. APROPOS GROUND NO. 3(III) OF THE CO WHEREIN THE ASSESSEE HAS CHANGED THE CHARGING OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT. CHARGING OF INTEREST IS CONSEQUENTIAL AND THEREFORE IT HAS TO BE CHARGED IN ACCORDANCE TO LAW. WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LD CIT(A) AND THEREFORE DISMISS THE GROUND RAISED BY THE ASSESSEE. 12. IN THE RESULT THE APPEAL PREFERRED BY THE REVENUE IS DISMISSED; AND THE CROSS - OBJECTION FILED BY THE ASSESSEE IS DISMISSED, AND THE IMPUGNED ORDER OF THE LD CIT(A) IS CONFIRMED. ORDER P RONOUNCED IN THE OPEN COURT ON 3 1 . 01 . 2014 . - S D / - - S D / - ( S. V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 3 1 / 01 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI