Income Tax Appellate Tribunal - Delhi
Hema Engineering Industries (P) Ltd., ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'C' BENCH
BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, AM
ITA no.487/Del/2012
Assessment year:2008-09
A.C.I.T.,Circle 12(1), V/s. M/s Hema Engineering
New Delhi Industries (P) Ltd.,
Sachidananda Farm
House,Khasra no. 95/8-9-
10-11 & 12, Kishan Garh
Village near DDA Sports
Complex, Mehrauli,
New Delhi
[PAN : AAACH 0118 F)
(Appellant) (Respondent)
Assessee by None
Revenue by Shri Surender Pal,DR
Date of hearing 03-04-2012
Date of pronouncement 13-04-2012
ORDER
A.N.Pahuja:- This appeal filed on 31.01.2012 by the Revenue against an order dated 24.11.2011 of the ld. CIT(A)-XV, New Delhi, raises the following grounds:-
1. "Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``44,325/- made by the AO on account of depreciation on computer accessories.
2. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``2,36,797/- made by the AO on account of Excise Duty and Sales tax loss.
3. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the
2 ITA no.487/Del./2012 disallowance of ``9,78,958/- made by the AO on account of the sales tax paid.
4. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``1,69,915/- made by the AO on account of fine and penalty.
5. Whether learned CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``5,00,000/- 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."
2. At the outset, none appeared on behalf of the assessee nor any request for adjournment has been submitted. Considering the nature of issues involved in this appeal, the Bench decided to dispose of the appeal after hearing the ld. DR
3. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of ``2,22,58,723/- filed on 30.09.2008 by the assessee, manufacturing auto parts, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), issued on 04.08.2009. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed, inter alia, that the assessee claimed depreciation of `44,325/- on computer peripherals viz. UPS, cassettes etc. ,amounting to ``98,500/-. According to the AO these items were not part of the computer and were, accordingly, entitled to depreciation @15% instead of 60% claimed by the assessee. While relying upon decisions in Orissa State Warehousing Corporation, 237 ITR 589 (SC); All India Lakshmi Commercial Bank Officers' Union Vs. Union of India, (1984) 150 ITR 1 (Delhi) and while distinguishing the decision in BSES Rajdhani in I.T.A. No.1266/2010 wherein only printers, scanners & server etc. were held to be part of computer, 3 ITA no.487/Del./2012 entitled to depreciation @60%, the AO concluded that UPS, switches, microwave, radio, camera, cable, port and connectors etc. could not be treated as part of computer and accordingly, restricted the depreciation @15%, resulting in disallowance of ``44,325/-.
4. On appeal, the ld. CIT(A) concluded as under:
"I have gone through the above submissions of the appellant and perused the AO's order. I find no justification in treating essential items like connecting wires & UPS as not computer essentials, therefore, this disallowance of `44,325/- is deleted."
5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR merely supported the findings of the AO.
6. We have heard the ld. DR and gone through the facts of the case. We find that the Hon'ble Delhi High Court in the case of CIT v. BSES Rajdhani Powers Ltd. in I.T. Appeal no. 1266 (Delhi) of 2010, in their decision dated 31-8- 2010 while adjudicating a similar issue, held as under:
"We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent."
6.1 Following the said decision, ITAT in ITO vs.v.Omni Globe Information Technologies India (P.) Ltd., 131 ITD 280(Delhi) held that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. Earlier Kolkata Bench in the case of Income Tax Officer Vs. Samiran Majumdar (2006) 98 ITD 119, held that the printer and scanner are integral part of the computer system and, therefore, entitled to higher rate of depreciation @.60 per cent . A similar view was taken by the Delhi Bench in their decision in the case of Container Corporation of India 4 ITA no.487/Del./2012 Ltd. Vs. ACIT(2009) 30 SOT 284 (Delhi). The Mumbai Special Bench in their decision dated July 9, 2010 in DCIT v. Datacraft India Ltd., in ITA nos. 7462 & 754/Mum/2007, held that routers and switches are to be included in the block of `Computer' entitled to depreciation at the rate of 60%.. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A) that UPS and connecting wires are part of computer, entitled to depreciation @60%. Therefore, ground no.1 in the appeal is dismissed.
7.. Ground no.2 relates to disallowance of ``2,36,797/- on account of excise duty and sales tax loss while ground no.3 relates to disallowance of claim of penalty in relation to sales tax payment of ``9,78,958/- &`ground no. 4 relates to disallowance of `1,69,915/-on account of fine and penalty. The AO noticed during the course of assessment proceedings that the assessee claimed deduction of ``2,36,797/- on account of excise duty and sales tax loss and `9,78,958 on a/c of penalties levied for not producing the relevant sales tax forms besides fines and penalties of `1,69,915/- . To a query by the AO, the assessee explained that the amount represented interest of excise duty on supplementary bills besides fines and penalties. However, the AO did not accept the submissions of the assessee on this ground that these payments were penal in nature and accordingly, disallowed the said amounts.
8. On appeal, the ld. CIT(A) allowed the claim of `2,36,797/- on the ground that similar claim had been allowed by his predecessor in the AY 2007- 08, in the following terms:-
"9. I have gone through the above submissions of the appellant and have considered the evidences 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 2007-08, and as there are no change in facts and circumstances in the year under consideration, hence, I find no reason to disagree with the decision of CIT(A)-XXVII."
5 ITA no.487/Del./2012 Accordingly, I hold that the interest payment to excise department and sales tax department is not penal in nature.
8.1 The ld. CIT(A) also allowed the claim of `9,78,958/-,holding 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 D1 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 ``239 crores it is hardly 0.04% of the turnover that the appellant has not been able to procure 'C' Forms and hence paid ``9,78,958/- 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 ``9,78,958/-.
8.2 The amount of `1,69,915/- was allowed by the ld. CIT(A) in the following terms:
"13. I have gone through the submissions of the appellant, facts and evidences placed on records. Since the issues in ground No.5, are related to the issues, mentioned in ground No.2 and 4 above, on which I have already given the findings in favour of the appellant, hence the appellant succeeds ground No.5 too. Accordingly, the addition of ``1,69,915/- is deleted."
9. The Revenue is now in appeal before us against the aforesaid findings of the ld.CIT(A). The ld. DR while supporting the order of the AO, contended that the impugned order is cryptic and non-speaking one and is therefore, required to be set aside since the ld. CIT(A) did not analyse the relevant provisions of law before concluding that the amount is not penal in nature.
.
10. W e have heard the ld. DR and gone through the facts of the case. The issue before us relates to disallowance of `2,36,7978/- & `9,78,958/- ,treated by the AO as penal in nature 6 ITA no.487/Del./2012 while the ld. CIT(A) deleted these amounts as also an amount of `1,69,915/- on a/c of fines & penalties, without analysing the relevant provisions of the Excise Duty and Sales Tax laws or other relevant enactments in order to ascertain as to whether or not the aforesaid amounts were compensatory or penal in nature. Even if these related to some offence, the relevant provisions have not even been identified. In these circumstances, it is not evident from the impugned order as to whether the amount levied is compensatory or penal in nature or related to some offence.
10.1 In Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, Hon'ble Apex Court after analysing the provisions of the Sugarcane Cess Act, 1956, concluded that interest paid under section 3(3) by the defaulter for delayed payment of the cess could not be described as a penalty imposed upon him for infringement of the law.
10.2 In CIT v. Hyderabad Allwyn Metal Works Ltd. [1988] 172 ITR 113, a division Bench of the Hon'ble Andhra Pradesh High Court had to decide two questions (1) whether the damages paid by the respondent-assessee under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, was an allowable deduction under section 37(1) of the Income-tax Act and (ii) whether the interest paid under the Bombay Sales Tax Act for delayed payment of sales tax there under was an allowable deduction under section 37(1) of the Income-tax Act. For deciding question (i), the Division Bench referred to the view of A. P. Sen J. of the Hon'ble Supreme Court found in a passage of his concurring judgment in Organo Chemical Industries v. Union of India, AIR 1979 SC 1803 ; [1979] 55 FIR 283, 304, on the expression " damages" occurring in section 14B of the Central Act of 1952, which reads thus (at page 118 of 172 ITR ) :
" The expression 'damages' occurring in section 14B is, in substance, a penalty imposed on the employer for the breach of the statutory obligation. The object of imposition of penalty under section 14B is not merely 'to provide compensation for the employees'. We are clearly of the opinion that the imposition of damages 7 ITA no.487/Del./2012 under section 14B serves both the purposes. It is meant to penalise defaulting employers as also to provide reparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries, i.e., to recompense the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the loss which is caused to the beneficiaries under the Scheme. The word 'damages' in section 14B is related to the word 'default'. The words used in section 14B are 'default in the payment of contribution' and, therefore, the word 'default' must be construed in the light of para. 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word 'default' in section 14B must mean 'failure in performance' or 'failure to act'. At the same time, the imposition of damages under section 14B is to provide reparation for the amount of loss suffered by the employees."
10.21 Accordingly, Hon'ble AP High Court held that damages paid by the concerned assessee-respondent could not have been treated by the Tribunal as purely compensatory. While recording such finding, the real distinction that exists between an impost which is compensatory and an impost which is a penalty, is pointed out, thus (at page 119 of 172 ITR):
"The question whether any such impost is in essence compensatory or is by way of penalty will have to be decided having regard to the relevant provisions of the law under which it is imposed 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 deduction under the Income- tax Act. Similarly, the circumstance that a fixed rate of interest has to be paid also may not be conclusive. Section 14B of the Act provides for levy of damages for delayed payment as a percentage of the amount due up to a prescribed maximum. Such determination is to be done by the appropriate authority after giving an opportunity to the employer. Thus, the levy will be by a speaking 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 authority under the Income-tax Act to decide with reference to the provisions of the Employees' Provident Funds Act and the reasons given in the order imposing and quantifying the damages to determine what proportion should be treated as penal and what proportion as compensatory. The entire sum can neither be considered as mere penalty nor as mere interest." Then, dealing with question (ii) relating to interest paid by the concerned respondent-assessee under the Bombay Sales Tax Act which the Tribunal had treated as an allowable deduction under section 37(1) of the Income-tax Act, the Division Bench considered the relevant provisions of the Bombay Sales Tax Act bearing on the question and held, thus ( at page 121 of 8 ITA no.487/Del./2012 172 ITR) : " From a reading of the aforesaid provision and in the background of the various sections mentioned above, it cannot be said that the levy under section 36(3), though called a penalty, is merely compensatory or in the shape of interest for delayed payment or penal in character. The Act does not provide for automatic payment of interest due to delay in payment. The levy under sub- section (3) of section 36 is to be made after giving notice to the dealer and after recording reasons for it where the tax has not been paid within the time contemplated for payment by the Act. The Commissioner has also the power to remit the whole or any part of the interest calculated in the manner mentioned in it which can be only on relevant grounds. Sub-section (5) of section 36, which is extracted above, indicates that after the levy of this amount under sub-section (3), immunity is granted from prosecution on the same facts. These indicate that the imposition, though called a penalty, is a composite one comprising both a penalty and a compensation for delayed payment. The Tribunal, therefore, was not right in treating the entire payment as merely interest for delayed payment.
As already indicated while discussing question No. (1), the nomenclature of the levy as interest, damages or penalty may not be conclusive."
10.3 A similar view was taken by the Hon'ble Apex Court in Prakash Cotton Industries Ltd. vs. CIT (1993) 201 ITR 684 (SC), wherein it was held that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to ascertain as to whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) of the Act, whenever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature.
10.4. Now adverting to the facts In the case before us , as pointed out by the ld. DR, a mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is cryptic and grossly violative of one of 9 ITA no.487/Del./2012 the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision. The requirement of recording of reasons and communication thereof by the quasi-judicial authorities has been read as an integral part of the concept of fair procedure and is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. Hon'ble jurisdictional High Court in their decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman423(Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. W e may point out that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)].
11. In the instant case before us, as is evident from the aforecited facts, the ld. CIT(A) allowed the claim for deduction of the aforesaid amounts under section 37(1) of the Act, without any examination of the scheme of the provisions of the relevant Excise or Sales tax laws or other relevant enactments, to ascertain as to whether or not penal charges paid by the assessee were compensatory or penal in nature or were composite or even related to any offence committed by the assessee under the said provisions. In fact, even the 10 ITA no.487/Del./2012 nature of amount of `1,69,915/- towards fine and penalties has not been gone into at all. In these circumstances & in the light of view taken by the Hon'ble Apex Court in their aforesaid decision in Prakash Cotton Industries Ltd.(supra) , we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the claim of deduction of aforesaid amounts mentioned in ground nos. 2 to4 in the appeal, afresh in accordance with law in the light of our aforesaid observations and various judicial pronouncements, including those referred to above, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the issue, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly as to whether or not the said amounts are compensatory or penal in nature or are composite or related to some offence under the relevant enactments. With these observations, ground nos. 2 to 4 in the appeal are disposed of.
12. Ground No.5 relates to disallowance of ``5,00,000/- out of following expenses:-
Head 2007-08 (in` `) 2008-09 (in` `) Sales 2619082196 2396355768 Job work 188841479 151070236 Payment to production staff and works 50016594 130400715 Machinery repairing 19762122 26257384 Freight Octroi & Cartage 9861889 37876169 Packing expenses 200550 14457710 STP Running Expenses 2787637 3846815 Payment to general staff 25058609 41457388 Travelling and conveyance 7075350 16420444 Rent 120000 8867968 House keeping expenses 1873760 3791420 Security expenses 4299430 7385874 12.1 Though the assessee is stated to have submitted voluminous
details and explanation , the AO concluded that major expenses under the head 'Job & Fabrication charges' and 'General expenses' were not justified and 11 ITA no.487/Del./2012 payment had been made to the related parties. Accordingly, the AO disallowed an estimated amount of `5,00,000/-.
13. On appeal, the ld. CIT(A) following his decision in the AY 2007-08 allowed the claim of the assessee in the following terms:-
"16. I have gone through the above submissions of the appellant and have considered the evidences 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 2007-08, and as there are no change in facts and circumstances in the year under consideration, hence, I find no reason to disagree with the decision of CIT(A)-XXVII.
As the Assessing Officer has not given any specific reason for disallowances of expenditure and has not cared to look into the voluminous details of the expenses incurred. Whereas full details of expenses have been furnished by the assessee before the Assessing Officer, I find no reason to confirm the addition of `5 lacs and is therefore, deleted."
14. The Revenue is now in appeal before us against the aforesaid findings of the ld.CIT(A).The ld. DR merely supported the order of the AO.
15. We have heard the learned DR and gone through the facts of the case. We find from the impugned order that in the AY 2007-08 also a similar disallowance was made by the AO on the basis of his findings in the AY 2006-07 also .The ld. CIT(A) deleted the disallowance on the basis of his findings in the AY 2006-07. On appeal, the ITAT vide their order dated 02.03.2012 in I.T.A. no.1065/D/2010 in the case of the assessee for the AY 2006-07 deleted the disallowance in the following terms:-
"5.8. Coming to the ad hoc 10% disallowance across the board on all the expenses, in our view CIT(A) has given sufficient reasons for deleting the addition, which are reproduced above. While framing the ex parte assessment, AO has statutory responsibility to be reasonable and making 10% ad hoc disallowance out of all the expenditure without consulting the preceding or subsequent assessment record of the assessee, the disallowance made by AO was arbitrary and rightly deleted by CIT(A). We uphold his order."
12 ITA no.487/Del./2012 15.1 In the light of aforesaid view taken by the ITAT,we are of the opinion that the AO was not justified in making an estimated disallowance ,without specifying any deficiency in the bills or books of accounts, even when ,indisputably, voluminous details were submitted by the assessee in support of various expenses. In these circumstances, especially when the ld. DR have not placed before us any material controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.5 in the appeal is dismissed.
16. No additional ground having been raised before us in terms of residuary ground no.6 in the appeal, accordingly, this ground is dismissed.
17. No other plea or argument was made before us.
18. In the result ,appeal is partly allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(U.B.S. BEDI) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
Copy of the Order forwarded to:-
1. ACIT, Circle 12(1), New Delhi.
2. M/s Hema Engg. Inds. Ltd., Sachidananda Farm House, Kishan Garh Village near DDA Sports Complex, Mehrauli, New Delhi
3. CIT-IV,New Delhi.
4. CIT(A)-XV, New Delhi
5. DR, ITAT,'C' Bench, New Delhi
6. Guard File.
BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi