M/s Khoday Industries Limited, Bangalore v. ACIT, Bangalore

ITA 407/BANG/2010 | 2003-2004
Pronouncement Date: 10-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 40721114 RSA 2010
Bench Bangalore
Appeal Number ITA 407/BANG/2010
Duration Of Justice 8 month(s) 15 day(s)
Appellant M/s Khoday Industries Limited, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 10-12-2010
Date Of Final Hearing 26-10-2010
Next Hearing Date 26-10-2010
Assessment Year 2003-2004
Appeal Filed On 26-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.407(BANG)/2010 (ASSESSMENT YEAR: 2003-04) M/S.KHODAY INDUSTRIES LTD. NO.9 SESHADRI ROAD BANGALORE. . APPELLANT VS. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 11(5) BANGALORE. RESPONDENT APPELLANT BY : SHRI S.SUKUMAR ADVOCATE RESPONDENT BY : SHRI G.V.GOPALA RAO CIT O R D E R PER A.MOHAN ALANKAMONY AM: THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER OF THE LD. CIT (A)-I BANGALORE IN ITA NO:13 1/AC- 11(5)/CIT(A)-I/07-08 DATED 8.12.2009 FOR THE ASSESS MENT YEAR 2003-04. 2. THE ASSESSEE COMPANY HAD IN ITS GROUNDS OF APPE AL RAISED NINE GROUNDS IN AN ILLUSTRATIVE AND ELABORATE MANNE R. HOWEVER ON A DECISIVE PERUSAL IT WAS NOTICED THAT THE CRUXES OF THE GRIEVANCES OF THE ASSESSEE COMPANY WERE TWO-FOLDS NAMELY: (I) THE CIT (A) OUGHT NOT TO HAVE CONFIRMED THE ADDITIO N OF RS.1 68 818/-MADE UNDER PENALTY THOUGH THE AMOUNTS REPRESENTED FOR DAMAGES FOR INFRINGEMENT OF LEGAL PROVISIONS OR IN DEFIANCE OF LAW; & ITA407(BANG)/2010 PAGE 2 OF 9 (II) THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.6 33 431/- UNDER THE HEAD SUNDRY CREDITORS. 3. THE ASSESSEE COMPANY [THE ASSESSEE IN SHORT] WAS IN THE LINE OF MANUFACTURE AND SALE OF IML PINS GE M CLIPS ETC. 4. BRIEFLY STATED WHILE CONCLUDING THE ASSESSMENT THE AO HAD MADE TWO DISALLOWANCES OF RS.1.68 LAKHS AND RS.6.33 LAKHS BEING PENALTY AND DAMAGES AND SUNDRY CREDITOR S RESPECTIVELY FOR THE BRIEF REASONS RECORDED IN HIS IMPUGNED ORDE R. 5. AGITATED THE ASSESSEE TOOK UP THE ISSUES BEFOR E THE CIT (A) FOR REDRESSAL. AFTER DUE CONSIDERATION OF THE CONTENTIONS OF THE ASSESSEE THE LD CIT (A) HAD DEALT WITH THEM AS UNDER: (I) DISALLOWANCE OF RS.1.68 LAKHS : THE WORD PENALTY USED IN S.27(3) OF THE PONDICHERRY GENERAL SALES TAX ACT 1967 FOR THE VIOLATION OF THE PROVI SIONS OF THE NOTICE OF ASSESSMENT AND SECONDLY THE PAYMENT WAS RELATED TO A DEFAULT FOR WHICH AS PER S.27(2)(B) AN APPLICATION TO THE CONCERNED MAGISTRATE COULD BE MADE FOR RELIEF AS IF IT WERE A FINE IMPOSED. THUS THE AMOUNT WAS PENALTY SIMPLICITOR AND NOT CO MPENSATORY IN NATURE AND THEREFORE SUSTAINED THE ADDITION. (II) DISALLOWANCE UNDER SUNDRY CREDITORS OF RS.6 33 43 1/- : (A) A CAREFUL PERUSAL OF THE ASSESSMENT ORDER FOR THE AY 1995- 96 DOESNT REVEAL THAT THE AMOUNT OF VOLUNTARY SURR ENDER OF RS.13.87 LAKHS INCLUDES THE SUNDRY CREDITORS FOR GO ODS OF METAL BOX INDIA LTD. AND OF EXPENSES RELATING TO K IRAN EXPORTS PVT. LTD. AND KIRAN INTERNATIONAL. THE AO HAD HOWEVER POINTED OUT THAT THESE AMOUNTS WERE APPEAR ING WITHOUT ANY CHANGE SINCE 31.3.1995 IN THE BOOKS TIL L THE RELEVANT AY 2003-04 I.E. FOR THE LAST 10 YEARS WH ICH ITSELF REFUTES THE ARGUMENT THAT THESE WERE THE AMOUNTS WH ICH ITA407(BANG)/2010 PAGE 3 OF 9 WERE OFFERED FOR TAXATION IN AY 1995-96. HAD IT BE EN SO IT SHOULD HAVE BEEN CONTINUED IN THE BOOKS OF THE ASSE SSEE EVEN AFTER THE DATE OF ASSESSMENT I.E. 27.3.1998 T ILL THE AY 2003-04? (B) WITH REGARD TO THE ADDITION OF RS.33 800/- BEI NG RECONCILIATION DIFFERENCE IN THE ACCOUNTS OF CANARA BANK IT WAS ADMITTED THAT THE DIFFERENCE EXISTS EVEN THOUGH IT WAS CLAIMED THAT THE DIFFERENCE WAS DUE TO A MISTAKE BY THE BANK FOR WHICH NO CONFIRMATION CAN BE FILED. 6. AGITATED THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. DURING THE COURSE OF HEARING THE CONTENTI ONS OF THE LD. AR WERE THAT RS 1 68 818/- : - THOUGH THE AMOUNT DID NOT REPRESENT PENALTY AND DAM AGES FOR INFRINGEMENT OF LEGAL PROVISIONS OR IN DEFIANCE OF LAW; THAT THE AMOUNT CLAIMED WAS ONLY COMPENSATORY IN NATURE IN THE FORM OF INTEREST FOR DELAYED REMITTANCE OF SALES-TA X; - IN AN IDENTICAL ISSUE IN THE CASE OF THE ASSESSEES SISTER CONCERN KHODAY BREWERIES LIMITED FOR THE AY 1999- 2000 THE CIT (A) HAD DELETED A SIMILAR DISALLOWANCE; & - IN RESPECT OF CASE LAWS ON WHICH THE ASSESSEE HAD P LACED RELIANCE THE CIT(A) PAMPERED IN STATING THAT THEY WERE NOT AT ALL APPLICABLE WITHOUT CITING AS TO HOW THEY WERE NOT FITTING IN TO THE PRESENT ISSUE; RS.6 33 431/- : - IGNORING THE CLAIM THAT UNDER SUNDRY CREDITORS TH E SAME WAS ALREADY ASSESSED TO TAX IN THE ASSESSMENT FOR THE A Y 1995-96 AND THAT THE ADDITION IN THIS YEARS ASSESSMENT RES ULTED IN TO DOUBLE ADDITION; & - THE CIT(A) ERRED IN COMING TO A CONCLUSION THAT OF THE MISTAKE OF THE ASSESSEE FOR HAVING SHOWN THE AMOUNT IN ITS BALANCE SHEET DOES NOT MEAN THAT THE OUTSTANDING BALANCE AS INCOME; THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS WERE NOT DETERMINING FACTOR FOR COMPUTATION OF INCOME UNDER THE I.T. AC T; THAT THE BANK RECONCILIATION DIFFERENCE COULD NOT BE TERMED AS INCOME SINCE THE BALANCE DOES NOT HAVE THE CHARACTER OF IN COME; ITA407(BANG)/2010 PAGE 4 OF 9 - RELIES ON CASE LAWS: (A) CIT K-II V. MANDYA NATIONAL PAPER MILLS LTD. 150 I TR 26 (KAR); (B) CIT V. MYSORE ELECTRICAL INDUSTRIES LTD. (1992) 196 ITR 884 (KAR) (C) CIT V. H.P.STATE FOREST CORPORATION - (2010) 229 C TR 287 (H.P) (D) KEDARNATH JUTE MANUFACTURING CO. LTD. V. CIT (1971) 82 ITR 363 (SC 6.1. ON HIS PART THE LD. D R WAS VERY EMPHATIC IN HIS RESOLVES THAT THE AUTHORITIES BELOW HAVE DULY CONSI DERED THE CONTENTIONS PUT-FORTH BY THE ASSESSEE AND ALSO ANAL YZED THE ISSUES BEFORE COMING TO A DEFINITE CONCLUSION AND THUS I T WAS PLEADED THAT THE STAND OF THE AO AS WELL AS THE LD. CIT (A) REQUIRES TO BE SUSTAINED. 7. WE HAVE ATTENTIVELY CONSIDERED THE RIVAL SUBMIS SIONS DILIGENTLY GONE THROUGH THE RELEVANT CASE RECORDS A ND ALSO THE EVIDENCES ADVANCED BY THE LD. AR DURING THE COURSE OF HEARING IN THE SHAPE OF A PAPER BOOK. I. RS.1 68 818/- (I) TERMING THIS PAYMENT AS A PENA LTY IN NATURE THE AO CONSIDERED THAT THIS DID NOT QUALIFY FOR DEDUCTION AS CLAIMED. THE LD. CIT (A) WENT A STEP FURTHER IN THE SENSE BY QU OTING THE RELEVANT SECTION OF PONDICHERRY GENERAL SALES TAX ACT 1967 [PGST ACT] AND CONCLUDING THAT THE AMOUNT WAS PENALTY SIMPLICI TOR AND NOT COMPENSATORY IN NATURE. (II) WE SHALL HAVE A GLIMPSE OF W HAT S.27 OF PGST ACT SAYS: 27. PAYMENT AND RECOVERY OF TAX-THE TAX ASSESSED U NDER THIS ACT SHALL BE PAID IN SUCH MANNER AND IN SUCH INSTALMENT S IF ANY AND WITHIN SUCH TIME AS MAY BE SPECIFIED IN THE NOTICE OF ASSE SSMENT NOT BEING LESS THAN TWENTY-ONE DAYS FROM THE ASSESSMENT THE WHOLE OF THE AMOUNT OUTSTANDING ON DATE OF DEFAULT SHALL BECOME IMMEDIATELY DUE AND SHALL BE A CHARGE ON THE PROPERTIES OF THE PERS ON OR PERSONS LIABLE TO PAY THE TAX UNDER THIS ACT. ITA407(BANG)/2010 PAGE 5 OF 9 (2) ANY TAX ASSESSED ON OR ANY OTHER AMOUNT DUE UN DER THIS ACT FROM A DEALER OR PERSON AND ANY FEE DUE FROM HIM UNDER THI S ACT MAY WITHOUT PREJUDICE TO ANY OTHER MODE OF COLLECTION BE RECOV ERED- (A) AS IF IT WERE AN ARREARS OF LAND REVENUE UNDER THE LAW FOR THE TIME BEING IN FORCE IN THAT BEHALF; OR (B) ON APPLICATION TO ANY MAGISTRATE BY SUCH MAGIS TRATE AS IF IT WERE A FINE IMPOSED BY HIM; PROVIDED THAT NO PROCEEDINGS FOR SUCH RECOVERY SHAL L BE TAKEN OR CONTINUED AS LONG AS HE HAS IN REGARD TO THE PAYME NT OF SUCH TAX THEIR AMOUNT OR FEE AS THE CASE MAY BE COMPLIED WITH AN ORDER BY ANY OF THE AUTHORITIES TO WHOM THE DEALER OR PERSON HAS AP PEALED OR APPLIED FOR REVISION UNDER SECTIONS 34 36 39 40 41 OR 42. (3) IF THE TAX ASSESSED UNDER THIS ACT OR ANY INSTA LMENT THEREOF IS NOT PAID BY ANY DEALER OR PERSON WITHIN THE TIME SPECIF IED THEREFORE IN THE NOTICE OF ASSESSMENT OR IN THE ORDER PERMITTING PAY MENT IN INSTALMENT THE DEALER OR PERSON PAY BY WAY OF PENALTY IN ADDI TION TO THE AMOUNT DUE A SUM EQUAL TO TWO PERCENT OF SUCH AMOUNT FOR EACH MONTH OR PART THEREOF AFTER THE DATE SPECIFIED FOR ITS PAYME NT. (III) ON A CRITICAL PERUSAL OF THE SAID SECTION CITED SUPRA WE FIND THAT THE ASSESSEE HAD NOT CONTRAVENE D OR FOR THAT MATTER VIOLATED ANY OF THE PROVISIONS OF THE SAID ACT BUT DELAYED IN MAKING THE TAX SO RAISED. (IV) IN LEGAL PARLANCE PENALTY IS A LIABILITY COMPOSED AS A PUNISHMENT ON THE PARTY COMMITTING THE BREACH OF CONTRACT. AGREEMENT TO PAY AT DEFAULT INTEREST AT A HIGHER RA TE DOES NOT AMOUNT TO PENALTY. EVEN UNDER THE PROVISIONS OF INCOME-TAX ACT IF AN ASSESSEE FAILS TO FURNISH HIS RETURN IN TIME OR NON-PAYMENT OF ADVANCE-TAX SELF-ASSESSMENT TAX ETC. HE IS REQUIR ED TO PAY ONLY INTEREST FOR SUCH A DEFAULT AS HE HAD NOT CONTRAVE NED OR BREACHED THE PROVISIONS OF ACT TO BE PENALIZED WHEREAS AN ASSESSEE WHO CONCEALS THE PARTICULARS OF HIS INCOME OR FURNISHES INACCURATE PARTICULARS OF SUCH INCOME THEN ONLY THE PENAL SEC TION WILL COME INTO FORE. LIKEWISE IN ANY ACT FOR THAT MATTER I F A PERSON OR AN ASSESSEE CONTRAVENES OR BREACHES THE PROVISIONS OF THE SAID ACT HE WILL BE BROUGHT UNDER THE SCANNER OF PENAL SECTI ON. (V) REVERTING BACK TO THE ISSUE ON HAND THE ASSESSEE IN OUR CONSIDERED VIEW HAD NOT CONTRAVENED THE PRO VISIONS OF ITA407(BANG)/2010 PAGE 6 OF 9 PGST ACT BUT FAILED TO PAY THE TAX IN TIME WITHIN THE TIME FRA ME FOR WHICH HE HAD TO PAY THE AMOUNT DUE PLUS A SUM EQUAL TO TWO PERCENT OF SUCH AMOUNT FOR EACH MONTH OR PART THERE OF AFTER THE DATE SPECIFIED FOR ITS PAYMENT. THOUGH THE NOMENCL ATURE OF INTEREST HAS BEEN DESCRIBED AS PENALTY IN S.27 OF PGST ACT AND ACCORDINGLY THE PAYMENT OF RS.168818/- MADE BY THE ASSESSEE FALLS WITHIN THE SCOPE OF COMPENSATION FOR DELAYED PAYMENT. (VI) IN THIS CONNECTION WE RE CALL THE WELL REASONING OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. MANDYA NATIONAL PAPER MILLS LTD. CITED SUPRA WHEREIN THE HONBLE COURT WAS EMPHATIC IN ITS RESOLVE THAT THE PENALTY PAYABL E FOR DELAY IN PAYMENT OF TAX WAS A STATUTORY LIABILITY AND IT WAS NOT FOR THE INFRACTION OF ANY LAW. IT WAS NOT A PENALTY IN THE REAL SENSE OF THE TERM AND WAS ONLY COMPENSATION FOR DELAY IN PAYMENT OF TAX DUE. (VII) THE HONBLE SUPREME COURT IN TH E CASE OF MAHALAKSHMI SUGAR MILLS CO. V. CIT (1980) 123 ITR 429 (SC) WHILE EXAMINING THE SCOPE OF S.3(3) OF THE U.P. SUG ARCANE CESS ACT 1956 PROVIDING FOR INTEREST PAYABLE ON ARREAR S OF CESS HELD THAT SUCH INTEREST SHOULD BE ALLOWED AS BUSINESS EX PENDITURE SINCE IT IS AN ACCRETION TO CESS AND NOT A PENALTY PAY ABLE FOR INFRINGEMENT OF ANY LAW. WITH DUE RESPECTS WE ARE OF THE FI RM VIEW THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT WHICH HAS BE EN DULY FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT C ITED SUPRA ARE DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE ON HA ND. (VIII) THE HONBLE HIMACHAL PRADESH HIGH COURT IN ITS RECENT RULING IN THE CASE OF CIT V. H.P.STATE FORE ST CORPORATION REPORTED IN (2010) 229 CTR 287 (HP) HELD THAT ITA407(BANG)/2010 PAGE 7 OF 9 INTEREST ON DELAYED PAYMENT OF SALES-TAX WAS COMPE NSATORY IN NATURE AND NOT PENALTY AND THEREFORE DEDUCTION WA S AVAILABLE FOR THE SAME. (IX) IN CONFORMITY WITH THE RULINGS OF THE HONBLE COURTS CITED SUPRA WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE LEGITIM ATE CLAIM OF THE ASSESSEE ON THIS SCORE. IT IS ORDERED ACCORDINGLY. II. RS.6 33 431/-: (I) THE AO IN HIS IMPUGNED OR DER HAD OBSERVED THAT FROM THE DETAILS FILED THE AMOUNTS CLAIMED UNDER SUNDRY CREDITORS HAVE BEEN OUTSTANDING FOR QUITE SOME TIME AND THAT THE ASSESSEE NEITHER FURNISHED CONFIRMATION LETTERS NOR THEIR PR ESENT ADDRESSES AND IN VIEW OF THAT HE TREATED THEM AS NON-GENUINE AND THE SAME WAS TREATED AS INCOME FOR THE CURRENT YEAR OF THE ASSESSEE. WITH REGARD TO THE AMOUNT OF RS.33800/- RECEIVED FROM CA NARA BANK THE AO TOOK A VIEW THAT SINCE THE ASSESSEE WAS UNAB LE TO EXPLAIN THE SAME HE HAD TREATED IT AS UNEXPLAINED CREDIT A ND ACCORDINGLY ADDED TO THE ASSESSEES TOTAL INCOME. (II) THE LD. CIT (A) FOR TH E REASONS RECORDED [PARA 5 (II) ABOVE] HE UPHELD THE ADDITIONS MADE BY THE AO. (III) WE HAVE CAREFULLY CONSID ERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE REASONING OF THE REVENU E IN TURNING DOWN THE ASSESSEES REQUEST. (IV) THE SALIENT FEATURE OF T HE ISSUE WAS THAT THE AO IN THE ABSENCE OF ANY CREDIBLE DETAILS ADDED THE C LAIM OF THE ASSESSEE TO ITS TOTAL INCOME. (V) HOWEVER THE ASSESSEE BROUG HT TO THE REFERENCE OF THE LD. CIT (A) DURING THE COURSE APPELLATE PROCEED INGS THAT - ITA407(BANG)/2010 PAGE 8 OF 9 - THE SAID SUM WAS ALREADY ASSESSED TO TAX IN THE A SSESSMENT FOR THE AY 1995-96 AND THAT THE ADDITION IN THIS YE ARS ASSESSMENT RESULTED IN TO DOUBLE ADDITION; & - THAT OF THE MISTAKE OF THE ASSESSEE FOR HAVING SHOW N THE AMOUNT IN ITS BALANCE SHEET DOES NOT MEAN THAT THE OUTSTANDING BALANCE AS INCOME; THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS WERE NOT DETERMINING FACTOR FOR COMPUTA TION OF INCOME UNDER THE I.T. ACT; THAT THE BANK RECONCILIA TION DIFFERENCE COULD NOT BE TERMED AS INCOME SINCE THE BALANCE DOES NOT HAVE THE CHARACTER OF INCOME; (VI) THIS ABOVE PIECE OF INFORMAT ION WAS NOT PLACED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS. WHEN THESE FACTS HAVE BEEN BROUGHT TO THE NOTICE OF THE CIT (A) THE LD. CIT(A) IN THE INTERESTS OF NATURAL JUSTICE AND FAIRNESS SHOULD HAVE CALLED FOR A FACT FINDING REPORT FROM T HE AO CONCERNED AND CONSIDERED THE RIVAL CLAIMS BEFORE RECORDING HI S FINDING. HOWEVER HE WENT AHEAD IN REJECTING THE ASSESSEES PLEA AT THE BACK OF THE REVENUE. (VII) IN A NUTSHELL THE FINDING OF THE AO WAS ON THE BASIS OF NON-AVAILABILITY OF SUNDRY CREDITORS DETAILS WH EREAS THE CIT (A) DECIDED THE ISSUE ON A DIFFERENT FOOTING WHICH WAS A NON-ISSUE WHEN THE AO CONCLUDED THE ASSESSMENT FOR THE AY UND ER DISPUTE. (VIII) IN THE INTERESTS OF NATU RAL JUSTICE THIS ISSUE IS REMITTED BACK ON THE FILE OF THE AO WITH SPECIFIC D IRECTIONS TO LOOK INTO THE GRIEVANCE OF THE ASSESSEE PARTICULARLY WH ETHER THE SAID AMOUNT OF RS.6 33 431/- UNDER SUNDRY CREDITORS WAS IN FACT ASSESSED TO TAX IN THE ASSESSMENT FOR AY 1995-96 IT SELF AND IF SO AS CLAIMED BY THE ASSESSEE ADDITION OF THE SAME I N THIS AY WOULD RESULT IN DOUBLE TAXATION. THUS THIS REQUIRES COM PREHENSIVE EXAMINATION. IN THE MEANWHILE THE ASSESSEE THROU GH ITS LD. A R IS ADVISED TO FURNISH ALL THE RELEVANT DETAILS AT I TS POSSESSION BEFORE THE AO WHICH WOULD FACILITATE HIM TO CARRY OUT THE DIRECTIONS OF THIS BENCH REFERRED SUPRA. IT IS ORDERED ACCORDINGLY. ITA407(BANG)/2010 PAGE 9 OF 9 8. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH DECEMB ER 2010 SD/- SD/- (GEORGE GEORGE K) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER PLACE : BANGALORE DATED: 10 TH DECEMBER 2010 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE