M/s. MGI Coutier Exotech Industries Pvt.Ltd, Pune V. Deputy Commissioner of Income tax,

ITA 72/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1093 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revised return; TDS; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 72/PUN/2017 नधा रण वष / Assessment Year : 2010-11 M/s. MGI Coutier Exotech Industries Pvt. Ltd., Gate No.1101, Urawade Road, Pirangut, Taluka Mulshi, Pune PAN : AAACM6873A Vs. DCIT, Circle-14, Pune Previously the DCIT, Circle-5(2), Mumbai Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order passed by the CIT(A)-7, Pune on 30-09-2016 in relation to the assessment year 2010-11. 2. The first ground is against the taxability of Rs.2,47,818/- as ‘Income from house property’. 3. Briefly stated, the facts of the case are that the assessee credited rental income in its Profit and loss account to the extent of Rs.11,67,940/-. It claimed to have earned rental income from Assessee by Shri Abhay Avchat Revenue by Shri S.P. Walimbe Date of hearing 25-05-2022 Date of pronouncement 26-05-2022 ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 2 two parties, namely, Rs.5,63,347/- from Voss Exotech Automotive Pvt. Ltd.(VEAPL) and Rs.6,88,335/- from Exotech Zaini Industries Pvt. Ltd. The AO observed that the assessee actually received a sum of Rs.8,10,958/- from Exotech Zaini Industries Pvt. Ltd. (EZIPL) and Rs.6,04,800/- from Voss Exotech Automotive Pvt. Ltd. totaling to Rs.14,15,758/-. He held that the differential amount of Rs.2,47,818/- (Rs.14,15,758 minus Rs. 11,67,940) was on account of TDS on rent which was not shown as income. He thus held that the rental income was underreported to that extent inasmuch as the rental income ought to have been shown at gross value rather than net of TDS. The assessee furnished necessary details before the ld. CIT(A) contending that the rental income was shown at gross basis and also reconciled the difference in the figures on two counts. First, that the rent of Rs.1,51,200/- for the last 3 months was wrongly included in the rental income but the reversal entry was passed on 31-03-2010, which the AO ignored. Second, the AO considered the figure of rent as inclusive of service tax. Not convinced, the ld. CIT(A) upheld the action of the AO on this score. ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 3 4. Having heard both the sides and gone through the relevant material on record, it is seen from page 12 of the impugned order that the assessee received one month’s rent at Rs.55,591/- from VEAPL at gross level, whose breakup has been given there itself with rent of Rs.50,400/- and service tax at 10% on Rs.5,191/-. The assessee properly considered rental income of Rs.50,400/- for each month in its ledger account, copy of which has been placed at page 26 onwards of the paper book. It is clear that the amount of service tax cannot be considered as part of the assessee’s rental income which has to be deposited with the exchequer. 5. As regards the other item of reconciliation of rent from VEAPL for the last 3 months, it is seen that the assessee has reversed the entry of rent for the months of January, February, and March, 2010 @ Rs.50,400/- per month. This shows that the assessee recorded the rental income at gross of TDS but the difference arose on account of reconciliation towards inclusion of service tax in the amount of rental figure considered by the AO and non-exclusion of rent for the last 3 months for which necessary reversal entry was passed in the ledger account for the ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 4 same year which got ignored at the hands of the authorities below. Since proper reconciliation between the figures of rent as per the Profit and loss account and the amount at the gross value has been made, which is apparent from the ledger account of rent in the books of the assessee, we hold that the addition of Rs.2,47,818/- is not justified, which is directed to be deleted. 6. The second ground raised in this appeal is against the confirmation of disallowance of Rs.3,50,990/- by treating the interest paid to Excise authorities as Penalty. The facts of this ground are that the assessee debited a sum of Rs.3,50,990/- on account of interest on service tax and excise duty. On being called upon to justify the deductibility, the assessee submitted that the Central Excise Revenue Audit (CERA) was conducted by the Excise authorities for the financial year 2008-09 during the course of which it was discovered that interest was payable by the assessee company. As the interest payment was not in the nature of penalty, which was evident from the copies of the challans, the assessee pleaded that it was compensatory and not penal in character and hence deductible. Not convinced, the AO ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 5 made the addition of Rs.3,50,990/-, which came to be affirmed in the first appeal. 7. We have considered the rival submissions and perused the relevant material on record. The assessee tried to establish the nature of payment as interest with the help of certain documents in the second paper book, which were not filed with the lower below. Admittedly, the documents in the second paper book are new documents, which were not there before the authorities below. In view of the fact that such documents have not been considered by the AO/CIT(A), we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of the AO for deciding this issue afresh as per law. In case the nature of payment is found to be compensatory, the deduction should be allowed. In case it turns out to be penalty, the addition should be made. Needless to say, the assessee will be allowed an opportunity to put forth its case with the help of necessary evidence/documents. 8. Ground Nos. 3 and 4 are inter-connected. The assessee has challenged the confirmation of addition of Rs.15,52,274/- ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 6 through ground No.3 and enhancement of Rs.12,87,391/- in ground No.4, both relating to the `Prior period expenses’. 9. During the course of assessment proceedings, the AO observed that the assessee incurred Prior period expenses to the tune of Rs.15,52,274/-, which were debited to the Profit and loss account. On perusal of the Computation of total income, the observed that such an amount was not added back. On being called upon to explain, the assessee submitted that Prior expenses of Rs.15.52 lakh were not added back in the original return but were subsequently added back in the revised return filed. The AO did not concur with the assessee’s submission and made the addition. The ld. CIT(A) affirmed the addition and thereafter also made a further addition of Rs.12,87,391/- towards Prior period expenses in the accounts for the A.Y. 2011-12. 10. We have heard the rival submissions and gone through the relevant material on record. We have examined the computation of income filed along with the revised return, from which it is apparent that the assessee suo motu added back a sum of Rs.15,52,274/- as `Prior period expenses’. Since the amount of `Prior period expenses’ has been added back by the assessee ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 7 itself in the computation of income in the revised return, making of the addition would lead to double disallowance, which is obviously not permissible. We, therefore, direct to delete the addition of Rs.15,52,274/-. 11. Now we come to the enhancement made by the ld. CIT(A). The assessee claimed deduction of Rs.12,87,391/- in its computation of total income which was claimed as `Prior period expenses’ for the succeeding year. The ld. CIT(A) held that this amount could not be allowed as deduction. We have examined the computation of total income for the succeeding year, whose copy is available in the paper book. As can be seen, the assessee made suo motu disallowance of `Prior period expenses’ in the computation of total income for the succeeding year, at Rs.10.35 lakh. As against that, the assessee has claimed deduction in this year on account of `Prior period expenses’ in the succeeding year at Rs.12.87 lakh. `Prior period expenses’ accounted for in the succeeding year cannot be allowed as deduction in such later year as they pertain to the earlier year. As such, there can be no embargo in claiming deduction for such an amount in the earlier year, to which they actually pertain. In the facts of the case, the ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 8 differential amount of Rs.2.35 lakh (Rs.12.87 lakh claimed as deduction during the year minus Rs.10.35 lakh offered as disallowance in the next year) is excessive deduction in the total income for the year under consideration relating to the `Prior period expenses’ accounted for in the succeeding year. We, therefore, restrict the disallowance to Rs.2.52 lakh. Thus, ground No.3 is allowed and ground No.4 is partly allowed. 12. Ground No.5 and the additional ground relate to the disallowance u/s.14A. The additional ground raised by the assessee, being, legal in nature is hereby admitted in view of judgment of Hon’ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC). 13. The factual matrix of the ground is that the assessee offered disallowance u/s.14A to the tune of Rs.1,20,025/-. The AO invoked Rule 8D and computed the disallowance under sub-rule (ii) and (iii) at Rs.2,48,952/- and Rs.1,14,403/- respectively. The additional disallowance to the tune of Rs.2,43,330/- was made by the AO. The assessee contended before the ld. CIT(A) that no exempt income was earned during the year and hence, even the suo motu disallowance inadvertently offered by the assessee ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 9 was required to be reversed. Not convinced, the ld. CIT(A) affirmed the addition. 14. We have heard both the sides and perused the relevant material on record. Page 59 of the impugned order categorically records the contention of the assessee that no exempt income was earned during the year. Such a contention has not been controverted by the ld. first appellate authority. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. More recently the Hon’ble jurisdictional High Court in Pr. CIT VS. Kohinoor Projects Pvt. Ltd. (2020) 425 ITR 700 (Bom) has held that in the absence of any exempt income, there cannot be any disallowance of expenses u/s 14A of the Act. 15. The ld. AR has invited our attention towards the balance sheet of the assessee, which indicates that the Shareholders’ fund was many times higher than the amount of Investments. Notwithstanding the fact that the assessee mistakenly admitted ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 10 disallowance to the tune of Rs.1,20,025/-, the addition made by the AO and the disallowance offered by the assessee cannot be sustained because the assessee did not earn any exempt income during the year and further its Shareholders’ fund was much more than the amount of Investments. We, therefore, allow ground No.5 as well as the additional ground. 16. Ground No.6 is against the confirmation of disallowance of depreciation amounting to Rs.5,79,899/- on new Plant and machinery. The AO observed during the course of assessment proceedings that four items of Plant and machinery, namely, Spin Welding Machine; Leakage Testing Machine; Design and Detailing of Fuel Rail; and Injection mould for Fuel Rail Body were purchased by the assessee vide bills dated 31-03-2010 for a total sum of Rs.77.31 lakh. The claim of the assessee for depreciation at 7.5% on the above purchases was jettisoned on the ground that it failed to prove that the machines purchased on the last day were also put to use on the same day. The ld. CIT(A) affirmed the action of the AO. 17. Having heard the rival submissions and gone through the relevant material on record, it is observed that the assessee ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 11 admittedly acquired the above referred four machines from Exotech Zaini Industries Pvt. Ltd., which was tenant of the assessee on 31-03-2010. The depreciation at the reduced rate would have been allowable if the new items of plant had been put to use during the year itself. No evidence worth the name has been placed on record to demonstrate that such huge items of machine acquired by the assessee on 31-03-2010, were initially uninstalled from the premises of Exotech Zaini Industries Pvt. Ltd.; installed at the assessee’s premises; and then put to use also on the same date itself. We, therefore, approve the action of the ld. CIT(A) in sustaining the disallowance of depreciation. This ground is not allowed. 18. Ground No.7 is against the confirmation of addition of Rs.13.00 lakh towards Design and development charges from Mahindra & Mahindra. During the course of assessment proceedings, the AO observed that TDS certificate issued by Mahindra & Mahindra indicated payment of Rs.13.00 lakh to the assessee towards technical services on which deduction of tax at source was made u/s.194J for a sum of Rs.1,30,000/-. On being called upon to explain as to where this amount was offered as ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 12 income, the assessee submitted that it was included in the figure of Sales. Certain details were also placed on record to establish the fact. Not convinced, the AO held that income from professional and technical services was nowhere reflected. He, therefore, made the addition for the said sum, which came to be affirmed in the first appeal. 19. We have heard the rival submissions and perused the relevant material on record. The assessee has set out a case that it raised an Invoice dated 01-07-2009 on Mahindra Renault Pvt. Ltd. amounting to Rs.17,47,949 inclusive of Service tax. Out of this sum, Mahindra Renault Pvt. Ltd. paid a sum of Rs.13.00 lakh to the assessee after deducting tax at source. To bolster its submission, the assessee placed on record a copy of ledger account of Mahindra Renault Pvt. Ltd. in its books of account for the year under consideration in the additional paper book at page 162. Admittedly, the ledger account of Mahindra Renault Pvt. Ltd. was not before the authorities below as it constitutes a part of the Additional paper book. Under such circumstances, we are of the considered opinion that it would be in the fitness of the things if the impugned order on this score is set aside and the ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 13 matter is restored to the file of the AO. We order accordingly and direct him to examine the assessee’s claim of inclusion of Rs.13.00 lakh in the figure of sales which is a part of that invoice raised on Mahindra Renault Pvt. Ltd. for a sum of Rs.17.47 lakh. Here, it is pertinent to mention that though the AO referred to the receipt of Rs.13.00 lakh from Mahindra & Mahindra, but the material placed on record including the TDS certificate, indicate the name of the party as Mahindra Renault Pvt. Ltd. and not Mahindra & Mahindra. The AO is also required to examine this fact. Needless to say, the assessee will be allowed reasonable opportunity of hearing in deciding this issue. 20. Ground No.8 is against not allowing deduction of Rs.14,400/-, being, expenditure incurred for the business relating to the assessment year 2010-11 and charged as Prior period expense in the accounts for the A.Y. 2011-12. There is no discussion on this issue in the assessment order. The ld. CIT(A), while dealing with ground No.16 raised before him urging that the sum of Rs.14,400/- was actually paid by the assessee during the year though relating to preceding year but booked under the ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 14 head prior period expenses, held that the assessee did not submit any evidence that the amount pertains to which assessment year. 21. We have gone through the relevant material on record. The claim of the assessee is that the sum of Rs.14,400/- pertains to preceding year which was in the nature of tax/duty not paid but deduction was claimed on actually paying it in the year under consideration. There is no doubt that if some tax payable for the preceding year was disallowed by the assessee/AO for non- payment and the same is paid during the subsequent year, such an amount can be claimed as deduction in the year of payment. However, to claim such a benefit, two things need to be proved. First, that such tax/duty must have been claimed as deduction and disallowed in the preceding year and second that it is paid during the year under consideration. The ld. AR submitted that the assessee paid Rs.14,400/- during the year under consideration but no deduction was claimed for this sum in the preceding year and hence, there was no question of making disallowance on this score in the preceding year. In such circumstances, we set aside the impugned order to this extent and direct the AO to examine the assessee’s claim. If the ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 15 assessee did not claim deduction of Rs.14,400/- in earlier years, but claimed such deduction on paying the tax/duty during the year, then deduction should be allowed in the year of payment, namely, the year under consideration. 22. Ground No.9, dealing with computation of book profit u/s.115JA, was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed. 23. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 26 th May, 2022. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दनांक Dated : 26 th May, 2022 Satish ITA No.72/PUN/2017 M/s. MGI Coutier Exotech Industries Pvt. Ltd., 16 आदेश क त ल प अ े षत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. यथ / The Respondent; 3. 4. 5. The CIT(A)-7, Pune The Pr.CIT-6, Pune िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / DR ‘A’, ITAT, Pune 6. गाड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 25-05-2022 Sr.PS 2. Draft placed before author 25-05-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *