M/S HERBICIDES (INDIA) LTD,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

PER BHAGCHAND, AM

The appeal filed by the assessee emanates from the order of the

ld. CIT(A)-I, Jaipur dated 23-10-2017 for the Assessment Year 2010-11

raising therein following grounds of appeal.

‘’1. That the authorities below have erred in holding that the AO was justified in initiating the proceedings u/s 147 of the I.T. Act, 1961. 2. That the authorities below have further erred in making addition of Rs. 2,06,530/- on account of bonus paid by the petitioner before due date of filing of return.

ITA No.849/JP/2017 M/s. Herbicides(India) Ltd, vs ACIT, Jaipur

2.1 Apropos Ground No. 1 of the assessee, the facts as emerges from

the order of the ld. CIT(A) are as under:-

‘’3.1.2 Determination:

(i) I have duly considered the assessment order, submissions of the appellant and the material placed on record. It is noted that in this case, assessment order passed u/s 143(3) of the Act was passed on 14-03-2013 and the notice u/s 148 of the Act was issued on 27-02-2015. It was the contention of the appellant that the reassessment proceedings were initiated on the basis of change of opinion and thus the impugned assessment order under consideration is bade in law. It would be appropriate to reproduce the reasons recorded by the AO for issue of notice u/s 148 of the Act as under:-

‘’In form no. 3CD of clause No. 16(a), it is stated that Rs. 2,06,530/- has been paid to an employee as bonus or commission for service rendered whereas such sum was otherwise payable to his as profit or dividend. This expenditure is not admissible for deduction as it contravenes provision of section 36(1)(ii) of the I.T. Act, 1961. Further, copy of expenses ledger placed on record includes ESI demand of Rs. 33,195/- and service tax demand Rs. 3,39,719/- these expenses are in the nature of fines and penalty and therefore, are not admissible in computing the total income. The above omission have results in under computation of income by Rs. 5,79,444/- (2,06,530+33,195+3,39,719) involving tax effect of Rs. 2,24,458/-.

ITA No.849/JP/2017 M/s. Herbicides(India) Ltd, vs ACIT, Jaipur Therefore, to assess the escaped income reassessment proceedings were initiated as discussed above. (ii) The appellant has not brought on record any material which may indicate that the above issues were examined and considered by the AO during the original assessment proceeding. Thus, there was no question of forming any opinion and thus, no change of opinion. Hence it is held that the AO was justified in initiating proceedings u/s 147 of the Act. Therefore, these grounds of appeal are hereby rejected.

2.2 After hearing both the parties and perusing the materials available

on record including the written submission of the assessee, we do not find

any plausible reason from ld. AR of the assessee that the Department has

wrongly invoked the provisions of Section 148 of the Act on the assessee

without disposing off the objections. It is noted that in this case notice u/s

148 of the Act was issued on 27-02-2015 after recording reason with the

approval of Additional Commissioner of Income Tax, Range-3, Jaipur

and copy of the reasons for reopening of the case was provided to the

assessee by the Department. The payment made to ESI of Rs. 33,196/-

was in the nature of penalty. This fact is admitted by the ld.AR in the

pleading itself. In such a situation, we do not find force in the arguments

of the ld. AR of the assessee that reopening is bad in law. Thus Ground

No. 1 of the assessee is dismissed.

ITA No.849/JP/2017 M/s. Herbicides(India) Ltd, vs ACIT, Jaipur 3.1 Apropos Ground No. 2 of the assessee, the facts as emerges from

the order of the ld. CIT(A) are as under:-

‘’3.3.2. Determination

The AO has disallowed a sum of Rs. 2,06,530/- in view of the provision of Section 36(1)(ii) of the Act and the specific remark of the auditor in Form No. 3CD. During the assessment proceeding as well as appellate proceedings, the appellant has failed to controvert the specific remark made by the auditor in Form No. 3CD and therefore, the addition of Rs. 2,06,530/- made by the AO is hereby sustained.’’

3.2 After hearing both the parties and perusing the materials available

on record, the ld.AR of the vide pages 4 to 6 of the paper book filed the

details of disbursement of bonus to its employees amounting to

Rs. 2,06,350/- for the year 2009-10. There is no evidence on record to

show that these employees were also holding any share of assessee

company. In view of these details available before the Bench, the

addition made by the lower authorities amounting to Rs. 2,06,530/-

towards bonus payment is deleted. Thus Ground No. 2 of the assessee is

allowed.

4.1 Apropos Ground No. 3, the facts as emerges from the order of the

ld. CIT(A) are as under:-

3.3.2. Determination

(i) I have duly considered the assessment order, submissions of the appellant and the material placed on record.

ITA No.849/JP/2017 M/s. Herbicides(India) Ltd, vs ACIT, Jaipur The AO has disallowed a sum of Rs. 33,196/- on account of ESI demand by treating the same in the nature of fines and penalties. It is seen that vide letter dated 27-03-2010 issued by the Office of the Recovery Officer, ESI, a sum of Rs. 20,875/- alongwith interest was due from the appellant on account of ESI contribution / interest / damages. There is no break up available on record of the said amount of Rs. 20,875/-. Further, the appellant has made payment of Rs. 11,463/- and Rs. 857/- on account of damages as is evident from the copies of challans submitted by the appellant and these are certainly in the nature of fine/ penalty. Therefore, in view of the above discussion, it is held that the AO was justified in making the disallowance of Rs. 33,196/- on account of ESI Payments and thus the same is hereby sustained. (ii) Regarding the disallowance of Rs. 3,39,719/- on account of service tax demand, nothing has been brought on record by the appellant regarding the nature of the said demand despite the fact that the case was adjourned to 19-06-2017, 03- 07-2017, 20-07-2017, 25-08-2017 and 23-10-2017 on the request of the appellant company for furnishing the details of the said demand. On 23-10-2017, the A/R of the appellant company again sought an adjournment and the same was rejected as sufficient opportunities to the appellant has already been provided earlier. In fact no challan evidencing the payment of the above amount was furnished. Since, the appellant has failed to substantiate its claimed that the above amount was relating to regular demand of service tax and not in the nature of fine/penalty, I do not find any reason to interfere with the findngs of the AO as recorded in the assessment order and therefore, the disallowance of Rs. 3,39,719/- made by the AO is hereby sustained.’’

4.2 We have heard the rival contentions and perused the materials

available on record. It is noted that the lower authorities have disallowed

a sum of Rs. 33,196/- and Rs. 3,39,719/- on account of ESI Payment and

Service Tax payment. During the course of hearing, the ld.AR of the

assessee filed the details of Service Tax amount of Rs. 3,39,719/- vide

page 3 of the paper book which has been confirmed on 26-07-2006 by the

ITA No.849/JP/2017 M/s. Herbicides(India) Ltd, vs ACIT, Jaipur Supdt. Central Excise Range-V, Jaipur. It is pertinent to mention that it is not a penalty or fine by the Central Excise Department but it was the service tax which was payable by the assessee amounting to Rs. 3,39,719/- for the year 2005-06. Hence, the service tax paid by the assessee to Central Excise Department is allowable expenses. As regards the ESI payments on account of damages payments by the assessee, it is noted that the ld. CIT(A) has rightly sustained the amount as it was a penalty and not allowable expenses. Thus Ground No. 3 is partly allowed. 5.0 In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 20 -07-2018. Sd/- Sd/- ¼ fot; iky jko ½ ¼HkkxpUn½ (Vijay Pal Rao) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member

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