Income Tax Appellate Tribunal - Chandigarh
Oswal Woollen Mills Ltd., Ludhiana vs Assessee on 16 January, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.1134/Chd/2011
(Assessment Year : 2005-06)
The D.C.I.T., Vs. M/s Oswal Woollen Mills Ltd.,
Circle-VII, G.T.Road, Sherpur,
Ludhiana. Ludhiana.
PAN: AAACO1973F
And
ITA No.1140/Chd/2011
(Assessment Year : 2005-06)
M/s Oswal Woollen Mills Ltd., Vs. The D.C.I.T.,
G.T.Road, Sherpur, Circle-VII,
Ludhiana. Ludhiana.
PAN: AAACO1973F
(Appellant) (Respondent)
Assessee by : Shri Navdeep Sharma
Department by : Shri Amarveer Singh, DR
Date of hearing : 16.01.2014
Date of Pronouncement : 28.01.2014
O R D E R
Per SUSHMA CHOWLA, J.M. :
These cross appeals filed by the assessee and the Revenue are against the order of the Commissioner of Income-tax (Appeals)-II, L u d h i a n a d a t e d 1 6 . 0 9 . 2 0 1 1 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 5 - 0 6 a g a i n s t the order passed u/s 143(3) of the Income Tax Act, 1961. 2
2. Both these appeals by the assessee and the Revenue were heard together and are being disposed off by this consolidated order for the sake of convenience.
3. The Revenue in ITA No.1134/Chd/2011 has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case, the Ld, CIT(A)-II, Ludhiana has erred in holding that only Rs.31,47,310/- should have been taxed during the year on account of surcharge paid to PSEB, as against the expenditure of Rs.2,04,43,346/- debited to P&L Account which was disallowed by the AO, thus allowing expenditure to the extent of Rs.1,72,96,036/- (20443346-3147310) claimed by the assessee during the A.Y. 2005-06, although surcharge to the extent of Rs.1,72,96,036/- was reduced by the Hon'ble Supreme Court in the Civil Appeal No. 2334 of 2006 filed by the assessee and therefore the amount of expenditure actually incurred during the A.Y. 2005-06 was only Rs.31,47,310/-.
2. On the facts and in the circumstances of the case, the Ld. CIT(A)-II, Ludhiana has erred in allowing the claim of the assessee that the expenditure to the extent of Rs.1,72,96,036/- be allowed in A.Y. 2005-06 by accepting the assessee's contention that Rs.1,72,96,036/- had been credited to the income in the A.Y. 2006-07. The assessee is following mercantile system of accounting and therefore, as the expenditure claimed by the assessee during the A.Y. 2005-06 had been reduced by Rs.1,72,96,036/-, the same should have been added as income of A.Y. 2005-06 and not A.Y. 2006-07. The order of Hon'ble Supreme Court was passed on 28.04.2006 and assessee had sufficient time to revise the return for A.Y. 2005-06.
4. The assessee in ITA No.1140/Chd/2011 has raised the following grounds of appeal:
1. That the Ld. CIT (A) erred in law & on facts by not annulling the reassessment order passed u/s 143(3) read with section 147. The reassessment proceedings was void-ab-initio as the Assessing Officer has wrongly assumed jurisdiction to reopen the assessment u/s 147/148. The assessment order passed u/s 143(3)/147 may be directed to be annulled.
2. That Ld. CIT(A) further erred in law and on facts of the case in sustaining the reopening of assessment by holding that assessee did not disclose the facts in return regarding the surcharge levied by PSEB, whereas complete facts were disclosed in the balance sheet in 'notes on accounts', which was part of the return. Direction be given to cancel the reassessment based on change of opinion.
3. That the Ld. CIT (A) erred in law and on facts by not setting aside the reopening proceedings on the reasons that surcharge paid to PSEB on account of peak load charges for non conversion of connection from 11 KVA to 35 KVA/ 66 KVA was penal in nature and not allowable as business 3 expenditure. No fresh material facts had come on record for reassessment and it was merely a change of opinion in view of an audit objection. Directions be given to cancel the assessment.
4. That the Ld. CIT (A) has further erred in law and on facts in upholding the disallowance of Rs.3147310 (which was finally ascertained by PSEB on the basis of decision of Hon'ble Supreme Court) paid to Punjab State Electricity Board as surcharge for use of peak load by treating it as penalty for infringement of law and hence not allowable. Directions may be given to allow the said amount as necessary business expenditure, in view of the decision of jurisdictional High Court in the case of Industrial Cable reported in 162 Taxman 423 (Pb.) and M/s Hero Cycles Ltd reported in 178 Taxman 484 (Pb.).
5. The assessee by way of ground Nos.1 to 3 has raised the issue against reopening of assessment under section 147/148 of the Act.
Further by way of ground No.4 the assessee has raised the issue against disallowance of Rs.31,47,310/- being the amount paid to Punjab State Electricity Board(PSEB) as surcharge for use of peak load.
6. The Revenue is in appeal against the order of the CIT (Appeals) in restricting the disallowance to Rs.31,47,310/- as against the expenditure of Rs.2,04,43,346/- disallowed by the Assessing Officer, on account of surcharge paid to PSEB. As the issue raised by both the assessee and the Revenue on the merits is in respect of the same expenditure, we proceed to dispose of the same after referring to the facts of the case.
7. The brief facts of the case are that during the year under consideration the assessee had filed its return of income declaring total income of Rs.11,62,76,452/- on 22.4.2010 in response to the notice issued under section 148 of the Act. The assessee had claimed expenditure of Rs.2,42,92,486/- on account of surcharge @ 17.5% for non conversion of connection from 11KCA/66KVA for the period from M a r c h 1 9 9 3 t o D e c e m b e r 1 9 9 6 a n d t h e p a ym e n t w a s m a d e b y t h e company after rejection of its grievance by the Hon'ble Punjab & H a r ya n a H i g h C o u r t . The Assessing Officer was of the view that the said amount was penal in nature and not allowable as deduction. The 4 Assessing Officer recorded the reasons for reopening of the assessment under section 147 of the Act and issued notice under section 148 of the Act to the assessee. The assessee after filing the return of income in response to the notice under section 148 of the Act asked for the reasons and the information on the basis of which the assessment proceedings was reopened. The Assessing Officer after considering the issue at length held that the assessee was not entitled to the said expenditure as it was penal in nature and could not be held to have been incurred wholly and exclusively for the business purpose. The Assessing Officer thus made an addition of Rs.2.43 crores.
8. Before the CIT (Appeals), the first contention of the assessee was that as no fresh information/facts had been received by the Assessing Officer on the basis of which he had the reason to believe that any income chargeable to tax had escaped assessment. As per the assessee the detailed facts regarding levy of surcharge @ 17.5% by PSEB because of non-conversion of connection from 11 K.V. to 33 K.V. was fully disclosed in the Printed Balance Sheet filed along with the return and was duly considered by the Assessing Officer at the time of original assessment, and had allowed the expenses accordingly. The assessee thus submitted that the Assessing Officer by issuing notice under section 148 of the Act and proposing to disallow the expenditure of Rs.2.43 crores was nothing but change of opinion. Further the basis for reopening of the assessment was only an objection received from the Audit Party and on that basis re-assessment proceedings initiated were totally illegal and unwarranted in law. In respect of the merits of the case, it was pointed out by the assessee that the said expenditure was an allowable expenditure under section 37 of the Act as the same was incurred for the purpose of its business. The said peak load charges 5 were raised by PSEB in their electricity bill for every month and the same was thus an allowable ex penditure. It was further contended b y the learned A.R. for the assessee that the issue was directly covered by the o r d e r o f t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e c a s e o f C I T Vs. Industrial Cables India Ltd. [162 Taxman 423 (P&H)], which was later followed in the case of Hero Cycles Ltd. [178 Taxman 484 (P&H)] a n d i n a s s e s s e e ' s o w n c a s e r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 3 - 0 4 , w h e r e i n addition was deleted b y the Tribunal in ITA No.7/Chandi/2007 vide order dated 28.1.2008. The CIT (Appeals) upheld the reopening of assessment as the assessee had failed to disclose the relevant facts of the returned income. In respect of the issue raised on merits, further plea of the assessee was that the expenditure of Rs.2.43 crores had been reduced to Rs.2.04 crores by the Assessing Officer as per the order passed under section 154 of the Act. It was further pointed out b y the learned A.R. for the assessee before the CIT (Appeals) that the Hon'ble Supreme Court in civil appeal filed by the assessee had reduced the amount of surcharge by Rs.1,72,96,036/-, which has been shown as income by the a s s e s s e e i n t h e s u b s e q u e n t ye a r . The expenditure thus incurred by the assessee was only Rs.31,47,310/-. The CIT (Appeals) held that the surcharge paid by the assessee to the Electricity Board was in the nature of penalty and consequently it was rightly disallowed by the Assessing Officer. However, as the Hon'ble Supreme Court in assessee's Civil Appeal No.2335 of 2006 vide judgment dated 28.4.2006 against PSEB & Others had given relief out of surcharge/penalty imposed for excess usage of the load, then the same is not to be disallowed in the instant a s s e s s m e n t ye a r a s t h e s a m e h a s b e e n o f f e r e d t o t a x i n t h e s u b s e q u e n t y e a r i . e . A s s e s s m e n t ye a r 2 0 0 6 - 0 7 a s ' o t h e r i n c o m e ' . 6
9. The assessee is in appeal against the addition of Rs.31,47,310/- and the Revenue is in appeal against the deletion of Rs.1,72,96,036/-. The learned A.R. for the assessee pointed out that after completion of assessment under section 143(3) of the Act vide order dated 15.12.2006, notice under section 154 of the Act was issued on 16.1.2008, against which the assessee filed the reply on 28.1.2008 which is placed at page 7 of the Paper Book. However, the said proceedings were dropped, though no order was passed by the Assessing Officer. Thereafter notice under section 148 of the Act was issued and the same issue was raised as in the proceedings under section 154 of the Act. The said notice was issued on 2 6 . 3 . 2 0 1 0 i . e . w i t h i n t h e p e r i o d o f f o u r ye a r s f r o m t h e c l o s e o f t h e assessment proceedings. It was contended by the learned A.R. for the assessee that notice under section 148 of the Act could not be issued. The learned A.R. for the assessee further pointed out that the issue of allowability of expenditure of Rs.2.04 crores made for extra peak load is covered in favour of the assessee by the decision of the Hon'ble Punjab & H a r ya n a H i g h C o u r t i n C I T V s . I n d u s t r i a l C a b l e s I n d i a L t d . ( s u p r a ) , C I T V s . H e r o C yc l e s L t d . ( s u p r a ) a n d i n a s s e s s e e ' s o w n c a s e ( s u p r a ) b y the order of the Tribunal. The learned A.R. for the assessee drew our attention to the details of the expenditure placed at pages 12 and 13 of the Paper Book alongwith some of the bills at pages 14 to 18 of the Paper Book and pointed out that in the notes to account, it was declared that the Punjab Electricity Board, Ludhiana had raised various charges. Copy of notes to account is placed at page 19 of the Paper Book, in which it was declared that the company had paid sum of Rs.2.04 crores to PSEB which was charged to the Revenue account and appeal against the same was pending before the Hon'ble Supreme Court of India. F u r t h e r d e c l a r a t i o n t o t h e e f f e c t w a s m a d e i n t h e s u c c e e d i n g ye a r i . e . a s s e s s m e n t ye a r 2 0 0 6 - 0 7 a n d t h e r e s u l t o f t h e S p e c i a l L e a v e P e t i t i o n 7 before the Hon'ble Supreme Court was also declared. Copy of the notes to account is placed at pages 20 and 21 of the Paper Book.
10. The learned D.R. for the Revenue pointed out that the perusal of the order of the Assessing Officer would reflect that the present charges h a d b e e n l e v i e d b y P S E B a s t h e a s s e s s e e f a i l e d t o u p g r a d e i t s s ys t e m a n d the said charges were penal in nature. In respect of reopening of assessment, it was pointed out by the learned D.R. for the Revenue that though the learned counsel states that declaration was made in the notes to account but if there is application of mind by the Assessing Officer then it would not fall in the domain of change of opinion. Reliance was placed on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Usha International Ltd. [348 ITR 485 (Del)].
11. The learned A.R. for the assessee, however, pointed out that s i m i l a r i s s u e w a s a l l o w e d i n t h e c a s e o f t h e a s s e s s e e i n a s s e s s m e n t ye a r 2003-04 and there was no merit in the reopening of assessment.
12. We have heard the rival contentions and perused the record. The issue raised in the present appeal is in relation to the expenditure of Rs.2,04,43,346/- on account of surcharge @ 17.5% for non conversion of connection from 11KCA/66KVA for the period from March 1993 to D e c e m b e r 1 9 9 6 a n d t h e p a ym e n t w a s m a d e b y t h e c o m p a n y a f t e r rejection of its grievance by the Hon'ble Punjab & Haryana High Court. The said expenditure was disallowed in the hands of the assessee by the Assessing Officer being penal in nature. However, the CIT (Appeals) considered the result of SLP under which sum of Rs.1,72,96,036/- was refunded to the assessee, which in turn had been offered as 'other income' by the assessee in the return of income relating to assessment y e a r 2 0 0 6 - 0 7 . T h e a s s e s s e e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n h a d p a i d 8 sum of Rs.2.04 crores to PSEB against the demand raised by it and booked the same as an expenditure on account of peak load charges levied by the PSEB. The first issue arising in the present appeal is whether the said expenditure is allowable in the hands of the assessee or the same is penal in nature. We find that similar issue of peak load c h a r g e s a r o s e b e f o r e t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e case of CIT Vs. In dustrial Cables India Ltd. (supra) and it was held that the excess charges paid for using excess load was paid in the course of business and the same was business expenditure.
13. F u r t h e r t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n t h e c a s e o f C I T V s . H e r o C yc l e s L t d . ( s u p r a ) c o n s i d e r e d s i m i l a r i s s u e a g a i n s t t h e d e l e t i o n o f p a ym e n t m a d e t o P S E B o n a c c o u n t o f e x t r a c h a r g e s b e i n g penalty paid and following the ratio laid down by the Hon'ble High Court in CIT Vs. Industrial Cables India Ltd. (supra), it was held as under:
"3. There is no doubt that payments made in the nature of penalty or fine for any wrongful act cannot be allowed as permissible deductions but mere label of the payment is not conclusive. Certain payments may be incidental to its business and have to be allowed on the test of "commercial expediency, if no violation of law or public policy is involved. Where penalty is not for deliberate violation of law, the amount may be allowed as deduction. There may be cases involving illegality or moral turpitude on the one hand and innocent violation on the other. Law is well settled. Reference may be made to judgments of the Hon'ble Supreme Court in Haji Aziz and Abdul Shakoor Bros v. CIT, (1961) 41 ITR 350, Malwa Vanaspatti v. CIT, (1997) 225 ITR 383, Parkash Cotton Mills Pvt. Limited v. CJJ.J (1993) 201 ITR 684. The test has to be applied from case to case."
14. The Chandigarh Bench of Tribunal in assessee's own case in ITA N o . 4 7 / C h a n d i / 2 0 0 7 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 3 - 0 4 w i t h l e a d o r d e r in the case of Addl.CIT Vs. M/s Nahar Export Ltd. in ITA N o . 5 / C h a n d i / 2 0 0 7 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 3 - 0 4 , o r d e r d a t e d 28.1.2008 vide paras 33 and 34 held as under:
"33. The Commissioner of Income-tax (A) has dealt with this issue in para 8.3 of his order. It has been pointed by the Commissioner of Income-tax (A) that in earlier years, the assessee had not paid the demand and had contested the claim made by M.P. State Electricity Board on account of Electricity cess imposed on consumption of electricity. The claim of the assessee was not allowed for non-payment of the demand. However, in the year under appeal, the assessee has paid the demand.9
So however, the matter is being contested before the authorities. It has been held by the Commissioner of Income-tax (A) that the assessee is entitled to deduction in the year of payment notwithstanding the fact that the claim is being contested. It has further been held by the Commissioner of Income-tax (A) that deduction is allowable to the assessee in the year under appeal. So however, in case the claim of the assessee that it is not liable to pay cess is accepted the amount of cess allowed as a deduction shall be assessable in the year in which the refund is received by the assessee.
34. In our considered view, there is no infirmity in the order of the Commissioner of Income-tax (A). We, therefore, find no justification to interfere with the order of the Commissioner of Income-tax (A) in this regard. The ground of appeal raised by the Revenue is accordingly dismissed."
15. I n v i e w o f t h e r a t i o l a i d d o w n b y t h e H o n ' b l e P u n j a b & H a r ya n a High Court and the Tribunal in assessee's own case, we hold that the excess peak load charges levied by the PSEB paid by the assessee during t h e ye a r u n d e r c o n s i d e r a t i o n w e r e a l l o w a b l e e x p e n d i t u r e i n t h e h a n d s o f t h e a s s e s s e e a s b e i n g r e l a t a b l e t o c a r r yi n g o n t h e b u s i n e s s o f t h e a s s e s s e e c o m p a n y. T h e t o t a l e x p e n d i t u r e p a i d b y t h e a s s e s s e e d u r i n g t h e year under consideration was Rs.2.04 crores. The Hon'ble Supreme Court in civil appeal filed by the assessee against PSEB & Others (supra) vide judgment dated 28.4.2006 had reduced charges to Rs.31,47,310/- and the assessee was entitled to refund of Rs.1,72,96,036/-, which has been shown as income by the assessee in the s u b s e q u e n t ye a r i . e . a s s e s s m e n t ye a r 2 0 0 6 - 0 7 . T h e a s s e s s e e h a d a l r e a d y declared the income to the extent of Rs.1.73 crores in the succeeding year, which has been taxed in the hands of the assessee. The said expenditure is duly allowable in the hands of the assessee and the balance expenditure of Rs.31,47,310/- is also directed to be allowed by the Assessing Officer in view of our finding in the paras hereinabove. In view thereof, ground of appeal No.4 raised by the assessee on the merits is allowed and the grounds of appeal Nos.1 and 2 raised by the Revenue are dismissed. In view of our allowing the issue on merits of 10 appeal, we are not adjudicating the issue of reopening of assessment under section 147/148 of the Act.
16. In the result, the appeal of the assessee is partl y allowed and the appeal of the Revenue is dismissed.
O r d e r p r o n o u n c e d i n t h e o p e n c o u r t o n t h i s 2 8 t h d a y o f J a n u a r y, 2014.
Sd/- Sd/-
(T.R.SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 28 t h January, 2014
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh j