Muriwala Agrotech Private Limited , Rajasthan V. DCIT Circle-14, Delhi

ITA 608/DEL/2022

AI Insights

The case involves Murliwala Agrotech Private Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) -XX VI, New Delhi, concerning the disallowance of expenditure amounting to Rs. 43,58,970 incurred on packing penalty. The expenditure was initially disallowed by the Assessing Officer under Section 143(3) r.w. Section 147 of the Income Tax Act, 1961, on the grounds that it was related to a breach of contract. The CIT(A) dismissed the appeal on grounds of indolence and negligence without addressing the merits. The Tribunal noted that the CIT(A) erred in dismissing the appeal without considering the merits and restored the matter back to the CIT(A) for a detailed examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121610 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-04-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 07-04-2022
• Other Referred Cases: CIT vs. B.N. Bhattacharya and another, 118 ITR 461, CIT vs. Catholic Syrian Bank Ltd., (2003) 130 taxman 447 (Ker), Jammu Auto Industries vs. CIT (2008) 167 taxman 192 (P &H) (FB), CIT vs. Eastern Medikit Ltd. (2011) 337 ITR 56 (Del)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 147; 37; 143(3); 37(1); 192; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A No.608/DEL/2022 Assessment Year 2012-13 Murliwala Agrotech Private Ltd., G-240-245, RIICO Industrial Area, Gudli, Udaipur. v. The Assistant Commissioner of Income Tax, Circle-14, New Delhi. TAN/PAN: AACCM0796Q (Appellant) (Respondent) Appellant by: Shri Shushil Kumar Gupta, CA Respondent by: Shri Ram Dhan, Meena, Sr.DR Date of hearing: 13 04 2023 Date of pronouncement: 21 04 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed by the Assessee against the order o f the Co mmissioner o f In co me Tax (Appeals) -XX VI, New Delhi (‘CIT(A)’ in short) dated 10.12. 2021 arising fro m the assessment order dated 24.12. 2018 passed by the Assessing O ffice r (AO) under Section 143(3) r. w. Section 147 of the Inco me Tax Act, 1961 (the Act) concerning AY 2012-13. 2. As pe r the grounds o f appeal, the a ssessee has challe nged the disallowance of expenditure o f Rs. 43,58, 970/- incurred on packing penalty. I.T.A No.608/Del/2022 2 3. Briefly stated, the asses see is eng aged in manu facturing processed food. The custo mer of asse ssee includes State Govern ments and Govern ment Depart ments. The assessee filed return of inco me declaring total inco me at Rs.1, 57,02,000/-. The return filed by the assessee was as sessed under Section 143(3) at Rs. 1,61, 02,000/-. Thereafter, the case was reopened under Section 147/148 of the Act and reassess ment order dated 24.12. 2018 was passed wherein the Asse ssing Officer inter alia disallowed expenditure of Rs.43, 58, 970/- incurred on packing penalty on the ground that expenditure termed as ‘Packing Penalty’ is in relation to breach o f co ntract and hence not allowable deduction under Section 37(1) r. w. Explanation thereto of the Act. 4. Aggrieved by the disallowance, the assessee pre ferred appeal before the CIT(A). The CIT(A) however declined to give relief on the afo resaid disallowance and passed ex-parte order. The CIT(A) has thus not disposed of the appeal on merit but dis mi ssed on the grounds of indolence and negligence by making a reference to the judgme nt of the Hon’ble Supre me Court in the case of CIT vs. B.N. Bhattacharya and another, 118 ITR 461. 5. Further aggrieved, the assessee p refe rred appeal before the Tribunal. 6. When the matter was called for hearing, the ld. counsel fo r the assessee sub mitted that the issue is squarely covered in favour o f the assessee by several judgments o f the Hon’ble I.T.A No.608/Del/2022 3 High Courts. It w as contended that the penalty imposed on the assessee was on account of fail ure to meet the contractual obligations of delivery of its pr oject to Aganwadi Centres within stipulated contractual time li mits. The penalty has been imposed on the assessee in the nature o f demu rrage for delay in delivery of goods. The penalty is not in the nature o f any statutory i mpost but is in the nature of breach of contract and therefore cannot be equated with expression ‘an o ffense o r prohibition by law’ as contemp lated in Explanation-1 to Section 37 of the Act. The copy of agreement executed by the assessee dated 04.02. 2010 with Govern ment of Gujarat was referred to where penalty clause has been provided fo r b reach of provisions o f the contract. 7. We take notice of the plea of the assessee that the penalty paid in the instant case are in the nature of damages paid for breach of contract and therefore, fully deductible under Section 37 of the Act and Explanation-1 is not attracted. It is true that damages paid fo r br each of contract are treated to be normal inci dence of business unlike the penalty paid on violation of stat utory provisions. Si milar issue has been examined in CIT vs. Catholic Syrian Bank Ltd., (2003) 130 taxman 447 (Ker); Jammu Auto In dustries vs. CIT (2008) 167 taxman 192 (P &H) (FB) and plethora of other j udgments. Thus, the issue raised by the assessee appears to be meritorious on fir st principles. However, in the same vein, we note that the assessee has failed to attend before the CIT( A) and the CIT(A ) has passed order ex-parte without expressing I.T.A No.608/Del/2022 4 any opinion on merits. 8. In this backdrop, we straightaway refer to Section 250(6) of the Act which enjoins that the CIT(A) shall state the points fo r determination before it and the decision shall be rendered on such points along with reasons fo r decision. Thus, it is incu mbent upon the CIT(A) to deal with the grounds on merits even in ex-parte order. In view o f Section 250(6) of the Act, the CIT(A ) has n o power to dis mi ss appeal on account of non prosecution as done in the instant case. A bare glance of the order o f the CIT(A) shows that CIT(A) has not itself addressed on various points placed fo r its determination at all and dis missed th e appeal of the assessee for de fault of non appearance. Needless to say, the CIT(A) plays role o f both adjudicating authority as well as appellate authority. Thus, the CIT(A) could not have shunned the appeal fo r non-compliance without addressi ng the issue on merit. Thus, i n view o f Section 250(6) of the Act, the issue requires to b e restored back to the file of the CI T(A) for adjudication in accordance with law. 9. We further gover ned by the observations of the Ho n’ble Delhi High Court in CIT vs. Ea stern Medikit Ltd. (2011) 337 ITR 56 (Del) wherein the Hon’ble High Court observed that it was not proper to decide the issue on merit s, converting itself to a Court of firs t instance and deciding the factual aspect on which the CIT(A ) has not retu rned any findings. Thus, while the issue has been discussed on first principles, it shall be I.T.A No.608/Del/2022 5 open to the CIT(A) to call fo r suc h infor mation or make such inquiry as may be considered necessary for deciding the issue on merits after giving proper opportunity to the assessee. 10. In the result, the appeal of the a ssessee i s allowed for statistical purposes. Order pronounced in the open Court on 21/04/2023. Sd/- Sd/- [CHANDRA MOHAN GARG] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /04/2023 Prabhat