SML LIMITED (FORMALLY KNOWN AS SULPHUR MILLS LTD),MUMBAI vs. ASST. DIRECTOR OF INCOME TAC, CPC, BENGALURU

O R D E R

PER ABY T. VARKEY, JM:

with respect to Short payment of PF/ESIC amounting to Rs.11,42,881/- as withdrawn, without considering the facts and circumstances of the case. The same be considered and the additional be deleted. (b) the Ld. CIT(A) has erred in stating that AO has passed a rectification order on this issue and that this ground has been withdrawn by appellant without considering the facts and 2 A.Y. 2019-20 SML Limited circumstances of the case. The same be considered and the ground be adjudicated. (c) i. Without prejudice to (a) & (b) above, Ld. CIT(A) has erred in not deleting the addition of Rs.15,33,166/- towards the short payment of contribution to Provident Fund and ESIC without considering the facts and circumstances of the case. The same be considered and the additions be deleted. (ii) The Ld. CIT(A) has failed to appreciate that even if there is short payment in certain months, there has been an excess payment in others resulting in net short payment of Rsw.3,90,285/- only which has been duly disallowed u/s 36 of Income Tax Act, 1961. The same be considered and the addition be deleted.”

3. Brief facts is that the assessee company had e-filed its return of income on 30.11.2019 declaring total income of Rs.138,98,77,424/-. The assessee’s return of income was processed by the CPC and various disallowance was made and thereby assessed income was computed at Rs.140,57,13,370/- by making inter-alia disallowance of Rs.56,61,422/- u/s 36(1)(va) of the Income Tax Act, 1961 (hereinafter “the Act”) and taking note of inconsistency in Schedule SI in the Income Tax return of Rs.2,05,10,351/-. Thus, total disallowance of Rs.2,61,71,773/- was made. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC wherein the assessee challenged the disallowance of Rs.56,61,420/- u/s 36(1)(va) of the Act. According to the assessee, the Ld. CIT(A) erred in dismissing this ground raised by the assessee on the wrong assumption of fact that the AO has rectified the order on this issue u/s 154 of the Act which was erroneous. Per-Contra, the Ld DR, could not controvert this assertion made by the Ld AR of assessee. Having perused the impugned action 3 A.Y. 2019-20 SML Limited of Ld CIT(A) on this issue, it is noted that he dismissed this ground on the erroneous assumption that AO has passed rectification order u/s 154 of the Act. Therefore, we find force in the submission of the assessee that since the Ld. CIT(A) has dismissed this ground/issue on wrong assumption of facts, the impugned action of the Ld. CIT(A) cannot be sustained, so it is set aside and the issue restored back to the file of the Ld. CIT(A) with a direction to denovo decide this ground of appeal raised by the assessee in accordance to law.

4. Second ground of appeal of the assessee reads as under: - “2(a) The Ld. CIT(A) has erred in stating that interest under section 234C has to be re-computed by the AO after giving effect to the appellate order. The same be considered and interest be computed as per returned income. (b) The Ld. CIT(A) has erred in dismissing ground of appeal with respect to interest u/s 234C of the Income Tax Act, 1961 of Rs.3,31,309/- without considering the facts and circumstances of the case the same be considered and interest be computed as per returned income.”

5. We find that the aforesaid ground of appeal of the assessee has not been decided by the Ld. CIT(A) by adverting to the claim of the assessee that the interest u/s 234C of the Act (short fall in remitting advance Tax) has to be as per the return of income filed by the assessee; and according to assessee, since interest u/s 234C of the Act as per the return filed by the assessee is to the tune of Rs.3,31,309/-, the CPC erred in levying interest of Rs.3,37,528/- u/s 234C of the Act. This plea of the assessee has not been considered by the Ld. CIT(A) while dismissing this ground of appeal of the assessee which needs to 4 A.Y. 2019-20 SML Limited be adjudicated as per law on the same. The Ld. CIT(A) is directed to decide the ground by passing a speaking order.

6. The third ground of appeal of the assessee reads as under: - “3(a) The Ld. CIT(A) has erred in not allowing claim of MEIS income of INR 12,72,51,368/- without considering the facts and circumstances of the case. The same be considered and the additional claim be allowed.” (b) The Ld. CIT(A) has erred in treating MEIS income of INR 12,72,51,368/- as revenue receipt without considering the facts and circumstances of the case. The same be treated as capital receipt and the additional claim be allowed.”

7. According to the Ld AR, this claim of the assessee was additional claim raised before the Ld. CIT(A). And even though the Ld. CIT(A) admitted the aforesaid additional ground of appeal has not passed a reasoned order on it. And therefore, the assessee pleaded that the same may be remitted back to the Ld. CIT(A) for adjudication, after hearing the assessee. We find that the assessee has raised this additional claim of export incentive availed in the form of Merchandise Export India Scheme (hereinafter “MEIS”) amounting to Rs.12,72,51,368/- be treated as capital receipt instead of revenue receipt. According to the Ld. AR, the export incentive in the form of MEIS amounting to Rs.12,72,51,368/- was a capital receipt and not exigible to tax. However, due to inadvertent error the company has offered it to tax in the return of income. According to the Ld. AR, the benefit of export incentive in the form of MEIS granted as rewards under the Foreign Trade Policy is to be treated as a capital receipt and 5 A.Y. 2019-20 SML Limited not as revenue receipt. And that the MEIS incentives are applicable from 1st April, 2015 until the validity of the FTP 2015-2020 which is 31st March 2020. And even though the Ld. CIT(A) admitted this additional ground of appeal, however, has not passed a reasoned order which he was duty bound to pass while determining the ground of appeal of the assessee as contemplated u/s 250(6) of the Act. In this context it would be gainful to refer to the observation of Hon’ble Apex Court that “Reasons substitute subjectivity with objectivity. Failure to give reasons amount to denial of justice as held by the Hon’ble Supreme Court in Mangalore Ganesh Beedi Works vs. CIT AIR 2005 SC 1308. Every quasi judicial order must be supported by reasons. This is basic principle of natural justice and must be observed in proper spirit. Mere pretence of compliance with it would not satisfy the requirement of law. Siemens Engineering Vs. UOI AIR 1976 SC 1785. Since the Ld. CIT(A) has not given any reason for rejecting the claim raised by the assessee even though the assessee has filed the grounds as well as case laws to support of its claim before him, therefore, the impugned action of the Ld. CIT(A) cannot be countenanced. It should be kept in mind that reasons are the soul of the order. Therefore, we set aside the impugned order of the Ld. CIT(A) and direct him to decide the issue as per sub-section (6) of Section 250 of the Income Tax Act, 1961 (hereinafter “the Act”) which reads as under: - “The order of the Commissioner (appeals) disposing of the appeal shall be in writing and shall state the points for 6 A.Y. 2019-20 SML Limited determination, the decision thereon and the reason for the decision”.

8. Therefore, in the light of Section 250(6) of the Act, we direct that the Ld. CIT(A) to spell out the points for determination and give reasons for his decision.Therefore, this issue is set aside back to the file of the Ld. CIT(A) for passing the speaking order in accordance to the law.

9. Ground no. 4 reads as under: - “4(a) The Ld. CIT(A) has erred in not allowing claim of electricity duty exemption of Rs.2,14,01,581/- without considering the facts and circumstances of the case. The same be considered and the additional claim be allowed. (b) The Ld. CIT(A) has erred in treating electricity duty exemption of Rs.2,14,01,581/- as revenue receipt without considering the facts and circumstances of the case. The same be considered as capital receipt and the additional claim be allowed.”

10. Even though the assessee has raised this additional ground of appeal before the Ld. CIT(A), he has passed cryptic order by dismissing the same by stating that the assessee has not submitted any evidence in support of its claim that the benefit of electricity duty exemption has been granted to it in connection with setting up/expansion of unit in Gujarat (Ankleshwar). And therefore, he held that it should be considered as capital receipt instead of revenue receipt. According to the Ld. AR, the assessee has filed the relevant evidences in support of its claim, but, the Ld. CIT(A) has brushed it aside and has not passed a reasoned order and has ignored document 7 A.Y. 2019-20 SML Limited filed by the assessee. Therefore, this issue is also restored back to the file of the AO with a direction to pass a speaking order as contemplated u/s 250(6) of the Act.