Income Tax Appellate Tribunal - Delhi
Hema Engg. Inds. Pvt. Ltd., New Delhi vs Department Of Income Tax on 22 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG: JUDICIAL MEMBER
ITA no. 778/Del/2011 &487/Del/2012
A.Y. 2007-08 & 2008-09
ACIT Circle 12(1), Vs. Hema Engineering Industries (P) Ltd.,
New Delhi. Sachindanand Farm House,
Khasra no. 95/8,9,10,11,12,
Kishangarh village, Mehrauli,
New Delhi.
PAN: AAACH 0118 F
AND
ITA no. 2446/Del/2012
A.Y. 2008-09
Hema Engineering Industries (P) Ltd., Vs. ACIT Circle 12(1),
Sachindanand Farm House, New Delhi.
Khasra no. 95/8,9,10,11,12,
Kishangarh village, Mehrauli,
New Delhi.
( Appellant ) ( Respondent )
Department by : Shri T. Vasanthan Sr. DR
Assessee by : Shri Anil Kumar Malhotra Adv.
Shri Ansh Kumar Sharma CA
Shri Lalit Kumar Sharma Adv.
Date of hearing : 11/03-2015
Date of order : 22-04-2015.
ORDER
PER S.V. MEHROTRA, A.M:-
These are cross appeals, preferred by the revenue as well as the assessee, for AY 2008-09. Revenue has also preferred appeal for AY 2007- 2 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
08. All these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. Brief facts of the case for AY 2008-09 are that the assessee in the relevant assessment year was engaged in the business of manufacturing of auto parts. It had filed its return of income declaring income of Rs. 2,22,58,723/-. The assessment was completed after making following disallowances/ additions:
Disallowance of expenses u/s 14A Rs. 1,05,29,574 Disallowance of depreciation on computer accessories Rs. 44,325 Disallowance of excise duty and sales tax loss Rs. 2,36,797 Disallowance/ addition on account of Sales tax paid Rs. 9,78,958 Fine and penalty Rs. 1,69,915 Adhoc disallowance of various expenses Rs. 5,00,000 2.1. In appeal, ld. CIT(A) partly allowed the assessee's claims. Aggrieved, the revenue as well as the assessee are in cross appeals before us. Revenue's appeal (ITA no. 487/Del/2012 - AY 2008-09):
4. Following grounds are raised:
"1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 44,325/- made by the AO on account of depreciation on computer accessories.
2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 2,36,797/- made by the AO on account of Excise Duty & Sales tax loss.
3. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the 3 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
disallowance of Rs. 9,78,958/- made by the AO on account of sales tax paid.
4. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 1,69,9151- made by the AO on account of Fine and Penalty.
5. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 5,00,0001- made by the AO out of expenses.
6. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing."
5. Brief facts apropos ground no. 1 are that assessee had made purchases of computer peripherals, UPS, cassettes etc. amounting to Rs. 98500/-, on which it had claimed depreciation @ 60%, which was restricted to 15% by the AO. In appeal the ld. CIT(A) accepted the asessee's claim and deleted the disallowance.
5.1. Having heard both the parties we find that the issue in question is squarely covered by various decisions of different High Court including the decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. BSES Rajdhani Powers Ltd. (order dated 31-8-2010 in ITA no. 1266/2010), allowing depreciation on computer accessories and peripherals @ 60%. Accordingly, we see no reason to interfere in the order of the CIT(A) on the issue in question. Ground is dismissed.
6. Apropos ground no. 2 the AO noticed that assessee had debited in its P&L A/c under the head "Excise duty and Sales-tax loss" A SUM 4 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
amounting to Rs. 2,36,797/-. The assessee explained that the amount represented the interest on payment of excise duty on supplementary bills. The AO concluded that these were penal in nature and, therefore, not allowable.
6.1. In appeal, the ld. CIT(A) following the order for AY 2007-08 allowed the claim by holding that the impugned amount was not penal in nature. 6.2. Having heard both the parties we find that the assessee's submission that the interest represented the amount paid on account of excise duty on supplementary bills has not been disputed by the department. This was clearly compensatory in nature and could not be treated as penal in nature because the short fall in payment of excise duty was not qua the original bills but on account of raising of supplementary bills. We, therefore, do not find any reason to interfere with the order of ld. CIT(A).
7. Apropos ground no. 3 the AO noticed that assessee had debited sales- tax amounting to Rs. 9,78,958/-. After examining the assessee's reply the AO noticed that demands had been raised by sales-tax authorities on account of penalties as assessee had not produced the relevant forms before the authorities. Therefore, he made an addition of Rs. 9,78,958/-, treating the payments as penal in nature.
7.1. In appeal, ld. CIT(A) deleted the disallowance by observing as under:
"11. I have gone through the above submissions of the appellant and I hold that the deposit of the sales tax on account of non-submission of Form-C and VAT Dl is compensatory in nature and not penal in nature. It is a commercial expediency to sell goods to registered dealer against Form-C. Further it is also seen that out of the total turnover of Rs.239 crores it is hardly 0.04% of the turnover that the appellant has 5 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
not been able to procure 'C' Forms and hence paid Rs.91781958 extra to Sales tax deptt. Therefore, considering the nature and also the commercial expediency the same, I hold that it is not penal in nature but represents the difference of Sales Tax payable for non submission of Form 'C' and VAT D1. Accordingly, I hold that above disallowance is deleted and the appellant gets a relief of Rs.9,78,958."
7.2. Nothing has been brought on record to controvert the findings of ld. CIT(A). The deposit of the sales-tax was on account of non-submission of form C and VAT D1 and, therefore, this could not be held to be penal in nature. We concur with the finding of ld. CIT(A). Ground is dismissed.
8. Apropos ground no. 4 the AO observed that assessee had debited in its P&L A/c of Rs. 1,69,915/- under the head 'fine and penalty'. The AO disallowed the assessee's claim observing that demands had been raised on account of violation of law.
8.1. Ld. CIT(A) deleted the penalty following his findings with regard to ground no. 2 & 3 above.
8.2. Having heard both the parties we find that before ld. CIT(A), the assessee had inter alia, submitted as under:
"... that the Ld. Officer has arbitrarily treated the above amount similar going by nomenclature of the head as fine & penalty and has disallowed the entire amount of Rs.1,69,915 without looking into the details submitted by the assessee vide letter dated 26.11.2010 wherein the assessee has pointed out that the account Rs.1,69,915 constitutes the following:
a) Sales Tax paid for Manesar Rs.30,229 pertaining to Financial Year 2003-2004 attributed to 6 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
the Sales Tax payment raised on for non collection of Form -C, VA T C-4 etc. and the same be read as part of the explanation given by us in our Grounds of Appeal No.4 above and is prayed to be deleted.
b) Balance of Rs.1,22,386. This amount represents interest on supplementary bills on Excise Duty raised to its customer for unit 11/ Manesar plant.
The amount was wrongly included under the head fine & penalty but should be a part of head Excise Duty and Sales Tax loss as contained in Grounds of Appeal NO.2 above. As this is attributed to interest on Excise Duty on supplementary bills therefore, the same is prayed to be deleted in full.
Similar addition was made in Assessment Year 2007- 08 and was deleted by the Hon'ble ClT(A)XXVII vide order dated 11th October, 2010 in appeal NO.168 by 2009-10."
8.3. The above submissions have not been controverted by the department. Therefore, ld. CIT(A) has rightly referred to his findings qua the issues raised in ground nos. 2 & 3 above. Ground is rejected.
9. Apropos ground no. 5 the AO noticed that assessee had incurred certain expenses which were disproportionate as compared to preceding year with regard to sales disclosed. He has given following details:
Head 2007-08 2008-09
(in Rs.) ( in Rs.)
Sales 2619082196 2396355768
Job Work 188841479 151070236
7
ITA no. 778/D/11,487/D/12 & 2446/D/12
Hema Engineering Industries Ltd.
Payment to 50016594 130400715
production staff and
works
Machinery 19762122 26257384
repairing
Freight Octroi & 9861889 37876169
Cartage
Packing Expenses 200550 1457710
STP Running 2787637 3846815
Expenses
Payment to general 25058609 41457388
staff
Travelling and 7075350 16420444
conveyance
Rent 120000 8867968
House keeping 1873760 3791420
expenses
Security Expenses 4299430 7385874
9.1. The assessee had furnished details of these expenses and also submitted voluminous explanation, after considering which, the AO disallowed Rs. 5 lacs, inter alia, observing that major expenses under the head job & fabrication charges and general expenses had been made to related parties which had not been justified.
9.2. In appeal, the ld. CIT(A) deleted the disallowance observing in para 16 as under:
"16. I have gone through the above submissions of the appellant and have considered the evidence and facts on records, since on this issue the CIT(A)-XXVII vide his order dated 11-10-2010 has already given a findings in Assessment year 2007-2008, and as there are no change in facts and circumstances in the year under consideration, 8 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
hence I find no reason to disagree with the decision of CIT(A)-XXVII.
As the AO has not given any specific reason for disallowance of expenditure and ahs not card to look into the voluminous details of the expenses incurred.. Whereas full details of expenses have been furnished by the assessee before the AO, I find no reason to confirm the addition of Rs. 5,00,000 and is therefore deleted."
9.3. Having heard both the parties, in our considered opinion, this being purely ad hoc disallowance made by AO without referring to any specific item of expenditure has been rightly deleted by the ld. CIT(A) We uphold the action of the ld. CIT(A) on the issue in question. Ground is dismissed.
Assessee's appeal (ITA no. 2446/Del/2012 - 2008-09):
10. The sole effect ground raised is as under:
"The Ld. CIT(A) has erred in law and on facts in confirming the addition made by the Ld. Officer u/s 14A amounting to Rs. 54,57,509/-. The order passed by the Ld. Officer is arbitrary, unlawful, unjustified and not founded on facts of the case."
11. The AO noticed that assessee had made certain investment in shares out of funds either borrowed by the assessee or from own resources. He observed that these investments either yielded or could yield income in the form of dividend, long term capital gains, interest free interest etc., which did not form income of the assessee, the expenditures were required to be 9 ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
disallowed u/s 14A. He computed the disallowance as per rule 8D at Rs. 1,05,29,574/-.
11.1. In appeal the ld. CIT(A) pointed out that the dispute between the AO's working and the assessee was on two counts, namely, interest component and figure of total assets. He pointed out that as far as the interest component was concerned, sum of Rs. 2,38,00,660/- related to bill discounting charges and was towards bank charges and hence was not for earning exempt income.
11.2. As regards the computation of average total assets, he pointed out that the AO had not added the figure of current liabilities in order to arrive at the average total asset figure. He, accordingly, directed the AO to recomputed the income.
11.3. Ld. counsel for the assessee submitted that no dividend was received by assessee during the year and no investment was made during the year. Ld. counsel referred to paper book which has been filed before us for the first time under Rule 29. He submitted that these documents are necessary for verification of assessee's claim. He referred to pages 18 to 35 of the PB, wherein CIT(A)'s order for AY 2009-10 is contained in which various issues have been considered having regard to the decisions of Hon'ble Delhi High Court in the case of CIT Vs. Relexo Footwears Ltd. 293 ITR 231; and Jay Engineering Works Ltd. Vs. CIT 311 ITR 405, he submitted that AO has to take into consideration that the investment made in AY 2008-09 did not yield exempt income.
10ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
11.4. We have considered the submission of both the parties. The main thrust of the assessee's submission is with regard to the computation of correct disallowance and, therefore, we admit the paper book filed by assessee and restore the matter to the file of AO for de novo adjudication in accordance with law.
Revenue's appeal (ITA no. 2446/Del/2012 - 2007-08):
12. Following grounds are raised:
"1. On the facts and circumstances of the case and in law, the order of the CIT(A) is erroneous, perverse, illegal and against the provisions of law which is liable to be set aside.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,37,31,379/- made by the AO on account of Sales Tax.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,00,000/- made by the AO on account of Fabrication and general expenses.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 82,714/- made by the AO on account of interest on service tax and excise duty."
13. Ground no. 1 is general in nature and requires no adjudication.
11ITA no. 778/D/11,487/D/12 & 2446/D/12 Hema Engineering Industries Ltd.
14. The issues involved for adjudication in ground nos. 2,3 & 4 have been dealt by us hereinabove in revenue's appeal for A.Y. 2008-09. No change in facts have been pointed out by either of the parties. Therefore, for the reasons given on relevant issues in A.Y. 2008-09, we uphold the order of CIT(A) and dismiss the grounds taken by the revenue.
15. In the result, revenue's appeals for A.Y. 2007-08 and 2008 stand dismissed and assessee's appeal for AY 2008-09 stands allowed for statistical purposes.
Order pronounced in open court on 22-04-2015.
Sd/- Sd/-
(C.M. GARG ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 22-04-2015.
MP: Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR