M/S EMM KAY INDUSTRIES LIMITED, JALANDHAR V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-II, JALANDHAR

ITA 672/ASR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7787 (ITAT-AMRITSAR)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-06-2018
• Assessment Year: 2006-2007
• Appeal Filed On: 23-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP C HAUHAN LD
• Assessee Lawyers: SANDEEP VIJH L D
• Keywords: Document seized
• Section: 143(3); 153A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.672(ASR)/2017 ASSESSMENT YEAR:2006-0 7 M/S. EMM KAY INDUSTRIES LIMITED D-29, FOCAL POINT, JALANDHAR PAN:AAACE 3104E VS. ASST. CIT CENTRAL CIRCLE-II JALANDHAR (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SANDEEP VIJH (LD. CA) RESPONDENT BY: SH. SANDEEP CHAUHAN (LD. DR) DATE OF HEARING: 26.06.2018 DATE OF PRONOUNCEMENT:05.07.2018 ORDER PER N.K.CHOUDHRY, JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE/APPELLANT, ON FEELING AGGRIEVED AGAINST THE ORD ER DATED 25.08.2017 PASSED BY THE LD. CIT(A)-5, LUDHIANA U/S 25 0(6) OF THE I.T. ACT, 1961 (HEREINAFTER CALLED AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. (A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), HAS ERRED IN SUSTAINING THE ORDER U/S 153A WHICH IS BAD IN LA W. NO INCRIMINATING DOCUMENT HAVING BEEN FOUND WHICH PERTAINED TO THIS YEAR AND CONSEQUENTLY THE ASSESSING OFFICER COULD NOT HAVE A SSUMED JURISDICTION U/S 153A. (NOT PRESSED) 1 .(B) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING ADDITI ON MADE IN THE ITA NO.672/ASR/2017 (A.Y.2006-07) M/S. EMM KAY INDUSTREIS LIMITED VS. CIT 2 ORDER U/S 153A READ WITH 143(3) WHICH IS NOT BASED ON ANY INCRIMINATING DOCUMENT SEIZED AT THE TIME OF SEARCH . (NOT PRESSED) 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S), HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,78,356/- MADE B Y THE ASSESSING OFFICER IN RESPECT OF DAMAGES PAID TO ESI DEPARTMEN T BY TREATING IT AS PENALTY NOT ALLOWABLE AS AN EXPENSE. EVEN IF THE SP ECIFIC SUBMISSIONS ON THE DISALLOWANCE WERE NOT ACCEPTED, THE MATTER S HOULD HAVE BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER TO OB TAIN NECESSARY CLARIFICATION FROM THE ESI DEPARTMENT, WITH REGARD TO THE EXACT NATURE OF THE AMOUNT IN QUESTION. 3. THE ONLY CONSIDERATION IN THE INSTANT APPEAL RELATES T O THE DISALLOWANCE OF RS.1,78,356/- WHICH HAVE BEEN CLAIMED AS EXPENSES BY THE ASSESSEE ON ACCOUNT OF ESI DAMAGES. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT A PART OF T HIS EXPENSES WERE ON ACCOUNT OF INTEREST PAYMENT WHEREAS THE REMAINING PART WAS A PENAL IN NATURE, HOWEVER, THE A SSESSEE COULD NOT FILE ANY DOCUMENTARY EVIDENCE WITH REGARD TO HIS CONTENTION, THEREFORE, THE ASSESSING OFFICER DISALLOWED TH E SAID EXPENSE BY TREATING THE SAME A PENAL IN NATURE. THE A SSESSMENT WAS CHALLENGED BEFORE THE LD. CIT(A), WHO VIDE IMPUGN ED ORDER UPHOLD THE FINDING OF THE ASSESSING OFFICER TO THE EFFECT THAT THE CLAIM OF RS.1,78,356/- AMOUNTS TO PENAL IN NATURE. FOR READY REFERENCE RELEVANT PART OF THE ORDER IS REPRODUCED HER EIN BELOW. 3.2. GROUNDS OF APPEAL NOS. 2 & 3 RELATE TO ADDITION OF RS.1,78,356/-. THE AO HAS MENTIONED THAT IT WAS NOT ICED, THE ASSESSEE CLAIMED EXPENSES OF RS.1,78,356/- ON ACCOU NT OF ESI DAMAGES. THE ASSESSEE WAS ASKED TO SHOW CAUSE W HY THESE MAY NOT BE DISALLOWED BEING PENAL IN NATURE. IN REPLY, THE ASSESSEE SUBMITTED THAT A PART OF THE AMOUNT WA S ON ACCOUNT OF INTEREST PAYMENT WHERE AS THE REMAINING PART WAS OF PENAL NATURE. THE AO MENTIONED THAT EVEN AFTER A LLOWING SUFFICIENT TIME THE ASSESSEE COULD NOT FILE ANY DOC UMENT SHOWING THE AMOUNT OF INTEREST INVOLVED IN THIS PAY MENT. ITA NO.672/ASR/2017 (A.Y.2006-07) M/S. EMM KAY INDUSTREIS LIMITED VS. CIT 3 THEREFORE, WHOLE OF THE AMOUNT WAS DISALLOWED BEING PENAL IN NATURE. THE FACTS OF THE CASE, THE BASIS OF ADDITION MADE B Y THE A.O. AND THE ARGUMENTS OF THE AR DURING THE APPELLA TE PROCEEDINGS HAVE BEEN CONSIDERED. DURING THE APPELL ATE PROCEEDINGS THE AR REPEATED THE ARGUMENT THAT PART OF PAYMENT WAS COMPENSATORY IN NATURE AND WAS AN ALLOW ABLE EXPENDITURE. HOWEVER, IT HAS NOT BEEN SHOWN EVEN DU RING THE APPELLATE PROCEEDINGS AS HOW MUCH AMOUNT WAS PENALT Y AND WHAT AMOUNT WAS COMPENSATORY INTEREST. UNDER THE FA CTS AND THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE MAD E BY THE AO IS SUSTAINED AS THE ASSESSEE HAS HIMSELF ACCEPTE D BEFORE THE AO THAT A PART OF THE AMOUNT WAS PENAL IN NATUR E BUT COULD NOT SPECIFY THE SAME EVEN DURING THE APPELLAT E PROCEEDINGS. ACCORDINGLY, THESE GROUNDS OF APPEAL ARE DISMISSED. 4. AT THE TIME OF HEARING, THE LD. AR FILED MANY JU DGMENTS AND SUBMITTED THAT THE ASSESSEE IS UNABLE TO SUBSTANTIATE ITS CLAIM DUE TO ITS INABILITY TO PRODUCE THE RELEVANT DOCU MENTS TO THE EFFECT THAT WHETHER THE PAYMENT UNDER CONSIDERATIO N WAS MADE QUA DAMAGES, PENALTY OR INTEREST. 5. HAVING HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE RELATES T O THE CLAIM OF RS.1,78,356/- WHICH HAS BEEN CLAIMED BY THE ASSESSE E ON ACCOUNT OF EST DAMAGES. THIS IS ADMITTED FACT THAT TH E ASSESSEE HAS FAILED TO BRING ANY MATERIAL ON RECORD AS TO WHETHER THE SAID AMOUNT WAS PAID BY WAY OF DAMAGES OR PENALTY OR INTEREST. EVEN THE ASSESSING OFFICER ALSO FAILED TO GIV E DEFINITE FINDING BY ANY CONTRARY MATERIAL TO THE EFFECT THAT T HE SAID AMOUNT WAS PENAL IN NATURE. THE APEX COURT IN THE CASE OF ITA NO.672/ASR/2017 (A.Y.2006-07) M/S. EMM KAY INDUSTREIS LIMITED VS. CIT 4 PRAKASH COTTON MILLS PVT. LTD. VS. CIT, DATED ON DECI SION 6 TH APRIL, 1993, IN CIVIL APPEAL NO.1279 OF 1977 [1993] 201 ITR 0684 HELD THAT: 'THE QUESTION WHETHER ANY SUCH IMPOST IS IN ESSENCE COMPENSATORY OR IS BY WAY OF PENALTY WILL HAVE TO BE DECIDED HAV ING REGARD TO THE RELEVANT PROVISIONS OF THE LAW UNDER WHICH IT IS IM POSED AND THE CIRCUMSTANCES UNDER WHICH IT HAS BEEN IMPOSED. THE MERE NOMENCLATURE AS INTEREST, PENALTY OR DAMAGES IN THE ACT MAY NOT BE CONCLUSIVE FOR THE PURPOSE OF ALLOWING IT AS A DEDU CTION UNDER THE IT ACT. SIMILARLY, THE CIRCUMSTANCE THAT A FIXED RATE OF INTEREST HAS TO BE PAID ALSO MAY NOT BE CONCLUSIVE. SEC. 14B OF THE ACT PROVIDES FOR LEVY OF DAMAGES F OR DELAYED PAYMENT AS A PERCENTAGE OF THE AMOUNT DUE UP TO A PRESCRIBED MAXIMUM. SUCH A DETER MINATION IS TO BE DONE BY THE APPROPRIATE AUTHORITY AFTER GIVIN G AN OPPORTUNITY TO THE EMPLOYER. THUS, THE LEVY WILL BE BY A SPEAKI NG ORDER OF THE AUTHORITY FIXING QUANTUM OF DAMAGES. AS HELD BY THE SUPREME COURT, THE SAID AMOUNT COMPRISES BOTH AN ELEMENT OF PENAL LEVY AS WELL AS COMPENSATORY PAYMENT. IT WILL BE FOR THE AU THORITY UNDER THE INCOME- TAX ACT TO DECIDE WITH REFERENCE TO THE PRO VISIONS OF THE EMPLOYEES' PROVIDENT FUNDS ACT AND THE REASONS GIVE N IN THE ORDER IMPOSING AND QUANTIFYING THE DAMAGES TO DETERMINE W HAT PROPORTION SHOULD BE TREATED AS PENA 1 AND WHAT PROPORTION AS COMPENSATORY. THE ENTIRE SUM CAN NEITHER BE CONSIDE RED AS MERE PENALTY NOR AS MERE INTEREST.' HENCE, CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE FEEL IT APPROPRIATE TO REMAND BACK THIS ISSU E TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE PROPORTIO N OF ANY, AND WHERE SO, WHAT PROPORTION SHOULD BE TREATED AS PEN AL AND WHAT PROPORTION AS COMPENSATORY, WHILE CONSIDERING THE EMPLOYEES STATE INSURANCE ACT. HENCE, THE ORDER IMPUGNED HEREIN IS SET ASIDE AND THE CASE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER T O DECIDE THE ISSUE UNDER CONSIDERATION IN VIEW OF THE OBSE RVATION MADE ABOVE. ITA NO.672/ASR/2017 (A.Y.2006-07) M/S. EMM KAY INDUSTREIS LIMITED VS. CIT 5 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05.07.2018. SD/- SD/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDIC IAL MEMBER DATED:05.07.2018 /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) M/S. EMM KAY INDUSTRIES LIMITED, JALANDHAR (2) THE ASST. CIT, JALANDHAR (3) THE CIT(A)-5, LUDHIANA (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER